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The one just ended has been a pretty volatile week for the US market, with investors continuing to show some concern about the possibility of a rate hike in December in an environment of still uneven economic growth. Deteriorating growth outlooks in Asia and Europe, and weaker-than-forecast US retail sales (only +0.1%, while it was expected at +0.3%), dragged stocks lower, while bonds gained as investors sought havens.
Strong sell-offs on Thursday and Friday led US stocks to close with their first weekly drop (-3.7%) since September. The S&P500 closed at 2,023.04 turning again negative for the year, and the Nasdaq closed at 4,927.88. Volatility spiked, with the CBOE VIX index jumping on Friday to break above the key level of 20.
On the FX market, the USD climbed versus most of its major peers on speculations that economic data below expectations will not stop the Fed from raising rates in December. The EUR touched $1.067 on Tuesday, the least since April, but then closed the week largely unchanged at 1.077.
Commodities dropped across the board, with the WTI closing at $40.74 and the Brent at $44.47, both down roughly 8% for the week, and copper reaching a six-year low.
During the following weeks, traders will be scrutinizing every piece of economic data, looking for hints about whether the Fed will deem the US strong enough for a December interest rates lift-off. Among them, CPI, Core CPI, building permits and Philadelphia Fed Manufacturing Index are likely to be the most relevant market movers.
Again, during this week, the movements in main European stock, currency and bond markets have followed central banks’ governors’ speeches. Investors are obviously expecting divergence between US and European monetary policies. Nevertheless, uncertainty in global stock markets and corporate scandals have deeply concerned investors, who are now far more risk averse and sensible to policymakers’ forward guidance.
On Tuesday, slightly positive but disappointing data regarding French and Italian industrial production were released. Despite that, a much larger impact has been noticeable in the aftermath of Mario Draghi’s speech at Bank of England Open Forum on Wednesday 11th November about cross-border market. Investors’ fear about Brexit has brought to sharp decreases in all major European stock market indices. The downward trend also extended to Thursday and Friday due to weak German and French inflation data, albeit aligned to expectations, and lower-than-expected European monthly industrial production data. Indeed, FTSE MIB declined by 4.17% between Wednesday and Friday, before slightly recovering on the same day; DAX lost 3.04% and Eurostoxx fell by 3.10% during the week. German GDP and Spanish inflation data have been thoroughly aligned to expectations.
The bearish and risk averse sentiment made investors look for safe havens. Indeed, European Govies performed well: German 10-year Bund yield fell from 0.69% to 0.56%; Italian, French and Spanish counterparts passed from 1.79% to 1.57%, 1.02% to 0.87% and 1.93% to 1.80% respectively. EURUSD has been far more resilient and closed the week near flat.
Next week, EU CPI and German ZEW economic sentiment index are due.
Even though Britain’s unemployment rate fell to 5.3%, its lowest level since early 2008, BoE’s chief economist said on Thursday that Britain does not need an interest rate hike in the near future. As one of the main reasons, it was mentioned that wage growth has not risen as strongly as the Bank projected. Moreover, last week the Bank of England said Britain’s near-zero inflation rate would only pick up slowly even if interest rates stayed on hold throughout next year. Additionally, even though domestic growth seems to be stronger and more stable, there are risks to the economy from an economic slowdown in emerging markets.
Furthermore, construction output (which makes up around 6% of UK economy) fell 0.2% in September, after a hefty 3.4% decline in August and against expectations for a 1.5% rise, the Office for National Statistics said on Friday. For the quarter as a whole, new housing construction fell by 4.3%, its biggest decline in just over three years, reflecting a drop in housing starts in the previous quarter around the time of May’s national election.
FTSE100 registered a poor performance and hit six-week low. Rolls-Royce stock plunged after its fourth profit warning in a row. Cable ended the week 1.21% higher at 1.5232. GBP gained slightly also against EUR.
The most important event next week concerning the monetary policy of the Bank of England will be the publication of the consumer price index on Tuesday. Investors will also look at retail sales on Thursday.
Elsewhere in the world
Several data from China this week. Trade balance figures confirm concerns: exports (-6.9%), imports (-18.8%) decreased significantly more than expected. Moreover, CPI (1.3% YoY) keeps missing forecasts: after being 1.6% in September, it was expected at 1.5% in October. On the other side, falling raw material prices are still weighing down on producer price inflation, which fell by 5.9% (-5.8% expected). Meanwhile, industrial production slows: ii increased by 5.6% in October (5.8% expected), compared to a 5.7% increase in September. Finally, fixed asset investments remained at the recent minimum. Only retail sales partly counterbalanced the situation, with an 11% increase YoY (10.9% expected).
Looking elsewhere, Russia preliminary GDP growth figures point to a marked slowdown in Q3 (-4.1% YoY), which is minor than expected (-4.4%) though.
Finally, a surprisingly strong labour market in Australia (+58.6k people employed in October, with unemployment rate falling to 5.9%, while it was expected unchanged at 6.2%) contributed to AUD reinforcement against USD during the week.
Next week, relevant macroeconomic data will be Japan Q3 GDP growth and unemployment rates of Brazil and Russia.
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