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United States
A flurry of US data came out this week. Consumer sentiment came in at 91.3 in November, below an initial reading of 93.1. New home sales rose to 10.7%, taken as positive despite coming in below consensus. Consumer spending increased 0.1% in October, below expectations of a 0.3% increase. Durable goods orders were up 3% in October, way above expectations and an improvement from the 0.8% increase in September. US jobless claims fell by 12,000 from last week to 260,000, below expectations of 270,000. Finally, the U.S. Commerce Department revised Q3 growth upwards to an annualized 2.1% growth vs. last month’s 1.5% estimate, due to a smaller decrease in inventories than previously expected and stronger consumer spending. Overall, the data show an uptick of growth for the U.S. economy despite a subdued inflation outlook due to lower oil prices, and we take this as a positive sign that the Fed will hike rates in the December meeting. The futures market is currently assigning a 78% probability of a rate hike.
During the week, the Dollar Index (DXY) surged 0.5% to 100.05, on the back of EUR weakness and expectations that the ECB will implement more aggressive easing policy than previously expected. EUR is trading at USD 1.0596. On the back of USD strength, we are seeing continued weakness in commodities, especially gold that is trading at USD 1,057, its lowest level since 2010.
S&P 500 traded mostly flat, and ended the day on Friday at 2,090.
Next week, ISM Manufacturing and Non-Manufacturing PMI, ADP Nonfarm Employment change and Nonfarm Payrolls will give us an even clearer picture of the situation towards the next Fed meeting.
European Union
European shares rebounded from their biggest drop in almost two weeks as investors turned their attention to the prospects for further ECB stimulus. However, shares pulled back from three-month highs on Friday. The Stoxx Europe 600 closed at 383.67, while Germany’s DAX and France’s CAC 40 finished at 11,293.46 and 4,930.14 respectively.
Due to the increased expectation on further stimulus, yields on European government bonds decreased during the week. Austrian, Italian and German 5Y notes touched a record low. In particular, German 5Y touched the lowest level, hitting -0.2%. Although 10Y bonds experienced small change, yield on the German 10Y Bund dropped to 0.46% that is the lowest level in this month.
As mentioned in the US section, EUR fell to a seven-month low against USD, below 1.06, after Reuters reported that the European Central Bank was considering a two-tier deposit rate. Banks would be charged more for holding sums above a certain level at ECB.
On Monday, Eurozone Manufacturing PMI for November was released. The figure is 52.8, above the expectations of 52.3.
The ECB’s meeting on Thursday stands to be the marquee event for European markets next week. Many analysts will look for ECB President Mario Draghi to unveil further actions possibly aimed at helping the Eurozone economy fight low inflation and sluggish growth.
United Kingdom
As anticipated in the market recap last week, the nationwide housing prices were published on Wednesday. British house price growth slowed this month, according to a survey published on Friday that suggested the recovery in the housing market, which recently pushed prices to new record highs, is advancing at a modest pace. Mortgage lender Nationwide said house prices rose by a less than expected 0.1% in monthly terms in November compared with a 0.5% increase in October. Economists polled by Reuters had forecasted 0.5% growth this month. It was the weakest monthly performance since June, Nationwide said.
Furthermore, British consumer morale has slipped to its lowest level in six months and growth among services companies slightly lowered, according to two surveys that suggested to a further moderation of economic growth. Market research firm GfK said its monthly consumer sentiment indicator dipped to +1 in November from +2 in October, bucking economists’ forecasts for it to hold steady. Moreover, optimism about the economy over the next 12 months dipped to its lowest level since July 2013, although the survey showed consumers still had a healthy appetite for splashing out on major purchases. A separate report from the Confederation of British Industry showed that growth of business volumes in the services sector, which makes up more than three-quarters of Britain’s private sector economy, eased in the three months to November.
Over the last week, the FTSE 100 performed slightly positive by gaining about 0.6%. Also, the Pound Sterling to Euro exchange rate performed nearly flat with a loss of only 0.2% over the week.
Moving to next week, investors will have a detailed look on the financial stability report issued by the Bank of England on Tuesday.
Elsewhere in the world
Japanese markets were closed on Monday, but rumours reported by Reuters point to further stimulus (on the fiscal side) promoted by Abe’s government. Later in the week, Japan household spending missed expectations, while national core CPI came in in line with analysts’ estimates.
Looking to other areas, Brazilian central bank kept interest rate at 14.25%, while Australian private new capital expenditures (-9.2% QoQ) missed forecasts. Moreover, Russian GDP decreased less than expected in Q3, whereas South African figures were published below predictions.
Looking forward, markets will discover PMI data from China, Japanese industrial production and Q3 GDP figures of Australia and Brazil among the other news next week.
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