Weekly wrap: Trick or treat? Investors hope Fed meeting produces no nasty surprises – 28.10.2013
Source: Henderson Global Investors
Global equities rose last week as analysts’ continued to forecast that the US Federal Reserve (Fed) might delay tapering its asset purchases for even longer. The US Employment Report revealed only 148k non-farm jobs were added in September, well below the 180k anticipated. The unemployment rate inched down to 7.2%, but the number of long-term unemployed remains high compared to historical levels. Underwhelming data on US existing home sales, initial jobless claims, and a weak manufacturing survey also argued against the Fed removing liquidity. In the bond markets 10-year treasury yields fell (prices rose), while gold bullion gained 2.3%. A raft of company earnings releases included encouraging reports from Ford, Amazon, and Microsoft.
Asian equities underperformed on fears that the Chinese authorities might intervene in the property market after new home prices in 70 major cities surged 9.1% year-on-year in September. Signs of a liquidity squeeze in the Chinese money markets overshadowed a strong manufacturing survey. The Topix also came under selling pressure after the Japanese Cabinet Office downgraded its assessment of the country’s export market. In the UK, minutes from the Bank of England’s October policy meeting caused speculation that interest rates may rise sooner than late 2016; officials noted a recovery in activity, which was later reinforced by news that the British economy had expanded 0.8% quarter-on-quarter in Q3. Eurozone data was more tepid, however; Markit's flash composite purchasing managers' index (PMI) fell in October from a two-year high previously. Also last week, the European Central Bank announced that its Asset Quality Review on major European lenders should be completed by October 2014, before it assumes its banking supervisory role.
Investors will be hoping that there will be no unpleasant tricks from the Fed when it announces its latest policy decision on Wednesday; markets continue to expect that tapering is off the cards for now. There are a number of extra data treats in store as the US continues to play catch-up on September’s delayed releases. Analysts expect industrial production (Monday) to increase by 0.4% month-on-month (mom), total retail sales (Tuesday) to come in flat, while the annual core inflation rate (Wednesday) may slip to 1.7% from 1.8% previously. Also in the mix is October data for consumer confidence (Tuesday) and ADP private payrolls (Wednesday), while the end of the week sees the publication of the ISM manufacturing survey. October’s data may evidence that confidence, jobs and business activity have been negatively affected by the 16-day government shutdown.
In the UK, September mortgage approvals, consumer credit and money supply data are due on Tuesday, while October’s manufacturing PMI will be in the spotlight on Friday. Analysts think that the survey may slip back slightly from September’s reading of 56.7 (a reading greater than 50 indicates expansion). Thursday should be a notable day for eurozone releases with unemployment and a preliminary reading of inflation data for October providing further clues on the strength of the region’s economic recovery. In Asia, Japan’s calendar becomes busy from Tuesday, with real household spending, unemployment, and retail sales data scheduled. Japanese manufacturing PMI, construction orders, and the Bank of Japan’s policy decision all follow on Thursday.