PAUSE FOR THOUGHT
Last week, stock markets continued to rebound from the sell-off towards the end of October. Equities were supported by signs of slowing activity, while bond yields rose as central-bank speakers remained hawkish and inflation expectations rose.
This week, focus is set to be on numerous economic datapoints. These include US consumer prices (tomorrow) and retail sales (Wednesday), German business confidence (tomorrow) and Chinese activity data (Wednesday). The data should allow the market to better assess the likely policy paths in the coming months.
Negotiations over preventing a US government shutdown after funding ends this Friday are also likely to be watched closely.
Last week, the S&P 500 rose by 1.4% (MTD 5.3%, YTD 16.6%), while the Euro Stoxx 50 rose by 0.5% (MTD 3.4%, YTD 14.2%). Equities continued the rebound from the sell-off towards the end of October, supported by signs of slowing activity.
In the US, the Fed's Senior Loan Officer Opinion Survey (SLOOS) for Q3 showed continued tightening of lending standards and reduced loan demand. This suggests that the Fed's tightening is having one of its intended effects of slowing credit growth. Meanwhile, labour-market data showed loosening conditions, with continuing claims rising for a seventh consecutive week to 1.834mn, though the level remains low by historical standards.
In Germany, September industrial production fell by 1.4% m/m, driven by declines in manufacturing (-1.7%) and energy (-2.1%). Despite robust factory orders in Q3, industrial production data suggests weak activity.
Fed Chair Powell's comments at the IMF last week again emphasised data dependence and were somewhat hawkish as he stated: "If it becomes appropriate to tighten policy further, we will not hesitate to do so." In addition, the University of Michigan survey showed consumer inflation expectations for the next 5-10 years rising to 3.2%, the highest level since 2011.
Given this backdrop and after the previous week's strong rally, bond markets gave back some of those gains. The US 10-year yield rose by 8bps to 4.65% (bond prices fall as yields rise).
This week, focus is set to be on numerous economic datapoints. These include US consumer prices (tomorrow) and retail sales (Wednesday), German business confidence (tomorrow) and Chinese activity data (Wednesday). The data should allow the market to better assess the likely policy paths in the coming months.
Negotiations over preventing a US government shutdown after funding ends this Friday are also likely to be watched closely.
Tue 14th
US - Consumer prices, NFIB survey
Germany - ZEW business survey
UK - Labour-market report
Wed 15th
US - Retail sales
Eurozone - Industrial production
UK - Consumer prices
China - Retail sales, industrial production, fixed-asset investment
Thu 16th
US - Initial jobless claims, industrial production
Fri 17th
UK - Retail sales
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.