Weekly wrap: Hurricane Sandy may hurt US housing and jobs data
Investors’ nerves were frayed for most of the week, as Republicans and Democrats locked horns over how to deal with the US ‘fiscal cliff’. President Obama continued to push for a raise on marginal tax rates, with Republicans strongly opposed. Markets took some comfort, however, when talks between the White House and Congress on Friday were described as “constructive”, although few details have been provided. Also weighing on equities, and exerting upward pressure on the oil price, was the news that Israel had launched an air offensive against Palestinian militants in the Gaza Strip.
News flow from Europe was likewise unnerving: anti-austerity rallies were marred by violence in Spain and Portugal during Wednesday’s organised protests. Despite a successful auction of Greek debt, markets remained on edge as the decision on the next tranche of Greek funding was postponed. Japanese equities bucked the global trend, however, rising after a general election was called for next month. Opposition leader Shinzo Abe, known for favouring monetary easing, will go up against current Prime Minister Yoshihiko Noda. Polls currently indicate that half of all voters are undecided, and that a coalition government is a strong possibility.
On Thursday, China’s new Standing Committee of the Politburo was revealed to the world. Xi Jinping and Li Keqiang were confirmed as President and Premier, while ex-President Hu relinquished his role as head of the military. In macroeconomic news, the annual rate of UK consumer price index (CPI) inflation rose sharply to 2.7% in October, following an increase in tuition fees and food prices, defying hopes it would stay near the Bank of England’s (BoE) 2% target. The BoE also cut its growth forecast for next year to about 1% from nearer 2%, predicting a "slow and protracted" recovery. News that the eurozone had fallen back into recession in Q3, while largely expected, added to the general sense of gloom.
Shaping the markets – this week
It's a quiet start to the week for the eurozone. On Wednesday, there is likely to be an underlying overshoot in the UK's October public finances data after a positive surprise in September. Thursday may reveal eurozone purchasing managers' indices (PMI) bottoming out in line with November's ZEW (eurozone indicator of economic sentiment) survey. Meanwhile, the UK's CBI (Confederation of British Industry) survey for November could show a fall in manufacturing output, but a further fall in orders looks unlikely after a significant drop in October. On Friday, an improvement in French business confidence is expected, however, the INSEE index is likely to remain at depressed levels.
In the US, housing and jobs data is likely to be biased lower as the full impact of Hurricane Sandy is taken into account. On Monday, the release of existing home sales data for October is expected to be in the region of 4.7 million, while on Tuesday housing starts are likely to decline to 840,000. On Wednesday, US initial jobless claims are expected to drop after a sharp rise to 439,000 last week. On the same day, the consensus is for the November University of Michigan Consumer Sentiment Index to remain unchanged from the preliminary reading of 84.9. US markets are closed on Thursday for the Thanksgiving holiday. In Asia, it is anticipated that Japan's October trade balance will show the weak export trend, especially to China and the eurozone, continuing on Wednesday. This is likely to remain a drag on gross domestic product (GDP).