Headlines
Global stock markets rallied as investors shrugged off trade tensions
European Union officials were reported to be holding a Brexit Summit on 17-18 November, at which they aim to agree on a formal Brexit arrangement before the transition period begins in March next year
In the coming week, the US Federal Reserve is widely expected to lift the federal funds rate by 25 basis points to 2.00-2.25%
US
For the US next week, the Federal Open Market Committee (FOMC) is widely expected to lift the fed funds target range by 25 bps to 2.00-2.25%. Policymakers have signalled a gradual pace of rate hikes amid healthy payroll gains, robust activity, and steady inflation.
Following the underwhelming CPI print, PCE core for August is expected to edge lower to 2.2% yoy, from 2.3% previously.
Turning to housing, the S&P Case-Shiller 20-City composite of home prices is forecast to dip 0.2% mom in the three months to July. This will modestly cool the annual pace to 6.2% yoy (+6.31% yoy prior) amid increasing affordability concerns and tight inventory of existing homes. Meanwhile, new home sales are expected to grow 0.6% mom to 631,000, with the recent trend slowing for the same reasons. Pending home sales are out later in the week and are predicted to edge 0.2% mom lower.
The Conference Board consumer confidence index is expected to stay at euphoric territory, cooling just 1.9 points to 131.5 in August.
Durable goods orders are anticipated to advance 1.7% mom in August, boosted by a bounce in commercial jet orders. The core non-defense capital goods ex-aircraft measure is envisaged to increase by 0.4% mom, downshifting after four months of solid gains.Europe
Germany’s Ifo Business Climate Index is expected to stabilise at around the 103 level in September. This follows a large rebound in the index in August, following significant declines in early 2018, as the overall eurozone economic environment stabilised and the EU negotiated a ceasefire in trade tensions with the US.
The flash estimate for eurozone inflation in September is expected to edge up slightly August’s prints, with both headline and core inflation rising 0.1 percentage points to 2.1% and 1.1% yoy respectively. This would return the headline number to July’s rate, which is the highest since December 2012. Core inflation pressures remain muted for the time being, however.
Emerging markets
Japan’s jobless rate is expected to stabilize at 2.5% in August, as survey-based signals (the employment component of the Economy Watchers Survey and EPA consumer confidence survey, as well as the manufacturing PMI) during the month were little changed, although mostly edging down slightly.
Japan industrial production for August is expected to rebound by 1.5% mom, after three straight months of losses, although concerns about US-China trade tensions will continue to weigh on exporters.
Market moves
Equities
US stock markets started the week off lower, as President Trump announced a 10% tariff on USD200 billion worth of Chinese imports starting on 24th September. However stocks recouped their losses amid fading trade war concerns and a strong rally in technology shares. Overall, the S&P 500 Index gained 0.8%. Canada’s S&P/TSX Composite Index also rallied this week, up 1.3% on investor hopes of a NAFTA deal.
European equities tracked US stocks to end the week higher, with investor sentiment lifted by news that China is planning to cut tariffs on non-US imports from the majority of its trading partners, possibly as soon as next month. The regional EURO STOXX 50 Index rallied 2.6%. All other national bourses also rose this week: Spain’s IBEX 35 gained 2.4%, France’s CAC 40 rose 2.6% and UK’s FTSE 100 rose 1.0%.
Asian stock markets excluding India, posted weekly gains, led by Chinese and Japanese stocks, amid signs of easing trade tensions and taking a positive lead from US equities. Japan’s Nikkei 225 and China’s Shanghai Composite rose 3.4% and 4.3%, respectively. Indian stocks ended the week lower, dragged down by financials shares on Friday.Bonds
US Treasury yields rose and prices fell for a fourth consecutive week with much of the weakness occurring on Tuesday, as US-China trade tensions forced investors to assess the outlook for inflation. Overall, two-year Treasury yields rose 2 bps to 2.80% and 10-year yields rose 7 bps to 3.06%. Canadian government bond yields also rose, with 10-year bond yields adding 9 bps to 2.43% amid better than expected manufacturing sales and retail sales ex auto releases for July.
Core European government bond yields edged up (prices fell) this week amid increased supply in the region including bond auctions from Germany, France and Spain. Benchmark German 10-year yields closed up 1 bp to 0.46%, while UK equivalents underperformed (10-year yields rose 2 bps to 1.55%) amid higher than expected CPI and retails sales data for August. In contrast, 10-year Italian bonds rose (yields fell 15 bps to 2.83%) as investor focus remained on the progress over budget talks.Currencies
The British pound ended flat against the US dollar this week, supported by stronger than expected retail sales data. However, sterling later pared back some of these gains on Friday following reports that UK Prime Minister Theresa May rejected the EU’s Brexit offer around the Irish border. The euro also gained (+1.1%) against the greenback.
EM Asian currencies appreciated against a generally weaker USD this week, amid improved risk sentiment. However, the Japanese yen weakened on reduced demand for safe assets.Commodities
Crude oil prices rose this week, with big gains occurring on both Tuesday and Wednesday. The support came from reports that Saudi Arabia would be comfortable letting Brent oil prices rose above USD80 a barrel, and that US’s crude inventories declined last week. WTI rose 3.0% to USD70.8 a barrel and Brent oil prices rose 0.9% to USD78.8 a barrel.
Gold prices rose this week (+0.5% to USD 1,199 per troy ounce) on a softer US dollar.
Regards
Global stock markets rallied as investors shrugged off trade tensions
European Union officials were reported to be holding a Brexit Summit on 17-18 November, at which they aim to agree on a formal Brexit arrangement before the transition period begins in March next year
In the coming week, the US Federal Reserve is widely expected to lift the federal funds rate by 25 basis points to 2.00-2.25%
US
For the US next week, the Federal Open Market Committee (FOMC) is widely expected to lift the fed funds target range by 25 bps to 2.00-2.25%. Policymakers have signalled a gradual pace of rate hikes amid healthy payroll gains, robust activity, and steady inflation.
Following the underwhelming CPI print, PCE core for August is expected to edge lower to 2.2% yoy, from 2.3% previously.
Turning to housing, the S&P Case-Shiller 20-City composite of home prices is forecast to dip 0.2% mom in the three months to July. This will modestly cool the annual pace to 6.2% yoy (+6.31% yoy prior) amid increasing affordability concerns and tight inventory of existing homes. Meanwhile, new home sales are expected to grow 0.6% mom to 631,000, with the recent trend slowing for the same reasons. Pending home sales are out later in the week and are predicted to edge 0.2% mom lower.
The Conference Board consumer confidence index is expected to stay at euphoric territory, cooling just 1.9 points to 131.5 in August.
Durable goods orders are anticipated to advance 1.7% mom in August, boosted by a bounce in commercial jet orders. The core non-defense capital goods ex-aircraft measure is envisaged to increase by 0.4% mom, downshifting after four months of solid gains.Europe
Germany’s Ifo Business Climate Index is expected to stabilise at around the 103 level in September. This follows a large rebound in the index in August, following significant declines in early 2018, as the overall eurozone economic environment stabilised and the EU negotiated a ceasefire in trade tensions with the US.
The flash estimate for eurozone inflation in September is expected to edge up slightly August’s prints, with both headline and core inflation rising 0.1 percentage points to 2.1% and 1.1% yoy respectively. This would return the headline number to July’s rate, which is the highest since December 2012. Core inflation pressures remain muted for the time being, however.
Emerging markets
Japan’s jobless rate is expected to stabilize at 2.5% in August, as survey-based signals (the employment component of the Economy Watchers Survey and EPA consumer confidence survey, as well as the manufacturing PMI) during the month were little changed, although mostly edging down slightly.
Japan industrial production for August is expected to rebound by 1.5% mom, after three straight months of losses, although concerns about US-China trade tensions will continue to weigh on exporters.
Market moves
Equities
US stock markets started the week off lower, as President Trump announced a 10% tariff on USD200 billion worth of Chinese imports starting on 24th September. However stocks recouped their losses amid fading trade war concerns and a strong rally in technology shares. Overall, the S&P 500 Index gained 0.8%. Canada’s S&P/TSX Composite Index also rallied this week, up 1.3% on investor hopes of a NAFTA deal.
European equities tracked US stocks to end the week higher, with investor sentiment lifted by news that China is planning to cut tariffs on non-US imports from the majority of its trading partners, possibly as soon as next month. The regional EURO STOXX 50 Index rallied 2.6%. All other national bourses also rose this week: Spain’s IBEX 35 gained 2.4%, France’s CAC 40 rose 2.6% and UK’s FTSE 100 rose 1.0%.
Asian stock markets excluding India, posted weekly gains, led by Chinese and Japanese stocks, amid signs of easing trade tensions and taking a positive lead from US equities. Japan’s Nikkei 225 and China’s Shanghai Composite rose 3.4% and 4.3%, respectively. Indian stocks ended the week lower, dragged down by financials shares on Friday.Bonds
US Treasury yields rose and prices fell for a fourth consecutive week with much of the weakness occurring on Tuesday, as US-China trade tensions forced investors to assess the outlook for inflation. Overall, two-year Treasury yields rose 2 bps to 2.80% and 10-year yields rose 7 bps to 3.06%. Canadian government bond yields also rose, with 10-year bond yields adding 9 bps to 2.43% amid better than expected manufacturing sales and retail sales ex auto releases for July.
Core European government bond yields edged up (prices fell) this week amid increased supply in the region including bond auctions from Germany, France and Spain. Benchmark German 10-year yields closed up 1 bp to 0.46%, while UK equivalents underperformed (10-year yields rose 2 bps to 1.55%) amid higher than expected CPI and retails sales data for August. In contrast, 10-year Italian bonds rose (yields fell 15 bps to 2.83%) as investor focus remained on the progress over budget talks.Currencies
The British pound ended flat against the US dollar this week, supported by stronger than expected retail sales data. However, sterling later pared back some of these gains on Friday following reports that UK Prime Minister Theresa May rejected the EU’s Brexit offer around the Irish border. The euro also gained (+1.1%) against the greenback.
EM Asian currencies appreciated against a generally weaker USD this week, amid improved risk sentiment. However, the Japanese yen weakened on reduced demand for safe assets.Commodities
Crude oil prices rose this week, with big gains occurring on both Tuesday and Wednesday. The support came from reports that Saudi Arabia would be comfortable letting Brent oil prices rose above USD80 a barrel, and that US’s crude inventories declined last week. WTI rose 3.0% to USD70.8 a barrel and Brent oil prices rose 0.9% to USD78.8 a barrel.
Gold prices rose this week (+0.5% to USD 1,199 per troy ounce) on a softer US dollar.
Regards