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This week has been very intensive due to the large amount of macroeconomic data that have stricken the US economy. On the labour market side, the situation continues to improve. In fact, the initial jobless claim beat expectations, 260K requests against a prediction of 263K, as well as the continue jobless claim that saw a 1.7% reduction compared to the previous week. These two figures show a stable and improving environment, which can justify the quite positive tone of the last speech of the FOMC. Moving to GDP growth, the situation is different. The preliminary annualized figure resulted 1.5%, versus expectations of 1.6% YoY. In addition, CPI decreased slightly and did not beat expectations of 1.5% YoY. Finally, housing market: the annualized number of new home sold in September did not beat estimates and showed a decrease of 11.5% with regard to the previous period.
In this contradictory environment, the most important news of the week was released on Thursday night, when the positive tone of the FOMC pointed to a possible rate hike in December. The probability of a rate hike measured with the formula built on the Fed Funds futures increased to 48% (versus a pre-speech figure of 32%).
Overall, the S&P500 gained 0.33%, while the NASDAQ registered a positive performance of 0.51%. The FX market has been very volatile during the week as the large amount of macroeconomic data had a strong impact on it. EUR/USD closed at 1.1009.
Looking forward, there will be another important week from the macroeconomic standpoint: ISM manufacturing and non-manufacturing PMI, non-farm payrolls and ADP non-farm employment change among the others.
European stocks finished lower on Friday, but the regional benchmark had the best monthly gain in more than six years: it ended October with a rise of 8%. DAX30 closed up 0.5% at 10,850, while CAC40 ended higher at 4,898. Some of this month gains came this week, after Mario Draghi signalled that the ECB is ready to increase its stimulus in December. Moreover, on Wednesday, the yield on German 10y Bund touched six-month low of 0.42% due to the increased speculation that ECB will extend QE in December. Driven by both Draghi and Yellen speech, EUR depreciated slightly against USD.
Looking at the data, German retail sales September figure was released this week and it was disappointing (retail sales were up 3.4% from September last year, but that is below the forecast by 0.7%). In addition, the Eurozone CPI – Core (YoY) was released at 1.0%, 0.1% above the forecast of 0.9%. EU unemployment rate fell to 10.8% in September from 10.9% in August, marking its lowest level since January 2012.
Moving to next week, main macroeconomic data will be manufacturing and services PMI, as well as retail sales.
UK economic growth cooled as manufacturing contracted the most since 2012, a sign that UK may be falling prey to global headwinds. Actually, the slowdown to 0.5% in the three months through September from 0.7% was sharper than economists had forecasted. Those data may signal that the emerging-market slowdown has damaged prospects for Britain’s expansion, and George Osborne said it shows that UK clearly faces global risks. In addition, BoE Governor, who previously said the timing for the first rate hike will become clearer around the turn of the year, stated on Sunday that if increases are not needed, officials will not act as the peak of growth rate seems to be probably gone.
Compared to a year earlier UK expanded 2.3% in the third quarter, compared with 2.4% in the second. Output is now 6.4% above pre regression peak. The BoE is due to publish new growth and inflation forecasts on November 5th, alongside its policy decision. In fact, the aforementioned data come from the first of three estimates of the ONS and may be revised (since it is based on about 44% of the information that will ultimately be available).
In such a context, the FTSE100 closed down from 6,445 to 6,361, while GBP/USD ended the week higher at 1.5426, up 0.784% in the last five days. The thinking is the BoE will move in lock-step with the US. So a Fed rate hike is being seen as a precursor to a lift-off by the UK central bank. GBP strengthened also against EUR and closed at 1.4017, registering the best monthly gain in five years.
Next week, we will be watching closely PMI figures (manufacturing and services) and, as mentioned above, the BoE decision.
Elsewhere in the world
The month of October ended with the BoJ meeting: the central bank’s board decided, voting 8 to 1, to keep existing QQE measures unchanged. However, the board postponed its time-frame for reaching the inflation target by 6 months (for the second time in 2015). The decision casts some doubts, also considering that core CPI resulted only slightly above expectations, still below 0% (-0.1%).
Other relevant data came from Australia: CPI missed analysts estimates, confirming the uncertain situation in the country, being affected by commodities rout.
Moving to next data, China manufacturing and non-manufacturing PMI will be revealed at the beginning of the week, followed by RBA interest rate decision on Tuesday night.
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