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Once again, the discussion around the expected Fed policy decisions in December has dominated the week in the US markets. The minutes of the Fed October meeting, released on Wednesday, hardened expectations of an interest rate hike. They also hinted at a cautious approach after that, as the Fed is likely to raise borrowing costs only gradually, due to the inflation numbers that are still far below the Fed 2% target rate.
The week has been strongly bullish for the stock market, with the Dow Jones erasing its year-to-date loss, and the S&P closing on Friday its best week for the year (+3.3%). This was mainly due to investors starting to price in the likely December hike, which may be considered a sign of confidence in the health of the US economy. The economic outlook also got a boost from the release of inflation and manufacturing data on Tuesday, with both US consumer prices and US manufacturing output increasing in October after two straight months of declines. The CPI was up 0.2% from September, manufacturing production up 0.4%.
Volatility decreased during the week, with the CBOE VIX index closing at 15.47, down 23% from last Friday. On the FX Market, USD climbed to a seven-month peak on Tuesday, and the EURUSD closed the week at 1,065. On the oil market, both the WTI and the Brent closed the week roughly unchanged, at 41.90 and 44.66 USD/bbl respectively.
Reduced trading volumes will probably characterize next week, with investors taking time off for the Thanksgiving holiday.
This week, there have been several interesting developments in the Eurozone. European indexes were down at the beginning of the week, on the back of the Paris attacks over the weekend, but have then managed to recover back, gaining around 3.5% since Monday. It will be interesting to see how European stock indices trade as more data comes out about the economic impact of the attacks on the French economy.
EU CPI data were released on Tuesday, with October CPI coming in above expectations of 0%, at 0.1% and October core inflation at 1.1%. German ZEW Economic sentiment shot up to 10.4 points in November from 1.9 points in October, on the back of a weaker euro following ECB hints this week of further monetary easing. EUR fell 0.6% on Friday, to USD1.0663, after Mario Draghi’s speech to the European Banking Congress was released, in which he stated his willingness to continue with easing until inflation came back on track to the ECB’s 2% target. The ECB will convene on December 3rd to decide how to continue to implement their monetary policy stance.
As anticipated last week, the publication of consumer prices on Tuesday was one of the major events this week. The publication showed that UK consumer prices dipped again in October. Moreover, Britain marked two consecutive months of falling consumer prices for the first time, but economists said the bout of mild deflation is likely to end in the next few months. This view is based on the fact that there was a slight uptick in core.
The outlook for British manufacturers darkened on Thursday as a survey showed they expect their output to fall, the first such prediction in three years, while official data marked a slight decline in retail sales in October. A gauge of expectations for manufacturing output over the next three months worsened to -6 from +5 in October, according to the Confederation of British Industry, the first forecast of a fall since November 2012.
The FTSE 100 registered a strong performance this week and closed by about 3% higher than last week. Royal Mail, publicly traded since 2013 and biggest IPO in the UK of the last 30 years, increased the outlook and the dividend which resulted in more than 10% increase of the stock price this week. Moreover, the Sterling climbed to about 1.4270 Euro by the end of the week, which is the highest value since July of this year.
The interesting events next week will be the nationwide housing prices published on Wednesday and the GDP growth rate of the third quarter on Friday.
Elsewhere in the world
Outside the three economic aggregates mentioned so far, Japan released Q3 preliminary GDP growth data: figures were below expectations (-0.8% YoY, while it was expected at -0.2%). Later in the week, BoJ restated, once again, that it is willing to keep monetary policy on hold. However, Japanese data appear rather weak.
Russia unemployment rate was just above forecasts at 5.5% (expected at 5.4%). Finally, job data missed expectations in Brazil as well (unemployment at 7.9% versus 7.6% expected).
Next week will be characterised by days of holiday in Japan and India that, together with US closure, are likely to reduce volumes on those markets.
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