Weekly wrap: European stocks rally to best week in 2012; German business confidence rises
US, European and Japanese stocks rallied over the week, while the euro reached a three-week high against the dollar. Risk assets were bolstered by improving German business confidence, news that Greece is closer to accessing emergency funding, as well as the ceasefire deal in the Gaza Strip. Additionally, manufacturing surveys in the US and China raised hopes for an improvement in the outlook for global growth. Wall Street was closed on Thursday for the Thanksgiving holiday while Japanese financial markets took a break on Friday due to a public holiday. In bond markets, Spain’s 10-year government bond yield fell 28bps to 5.62% while German and US yields ended the week higher at 1.43% and 1.66% respectively.
In the US, there was optimism for a deal to avoid the fiscal cliff; Congressional leaders said they were confident that an agreement could be reached before Christmas. However, on Tuesday, Federal Reserve Chairman Ben Bernanke commented that US economic growth is already suffering from worries over budget negotiations and that Congress should raise the debt ceiling to avoid a ‘catastrophic default’ on national debt. Improving economic indicators included better news on housing, with existing home sales climbing 2.1% in October, and housing starts rising by 3.6%, its highest rate in more than four years. The November Markit Flash Manufacturing Purchasing Managers’ Index (PMI) rose to 52.4, more than the consensus of 51. Meanwhile, the Conference Board Leading Economic Index advanced for a second month in October to 96.0, pointing to modest expansion in early 2013. In Europe, Moody’s lowered France’s sovereign credit rating from Aaa to Aa1. The Ifo Institute’s business climate index for Germany climbed from 100 last month to 101.4 in November, the first gain in eight months – the forecast was for a fall to 99.5. Meanwhile, talks on the European Union’s seven-year budget collapsed after EU President Herman Van Rompuy, said that the €30bn gap between the spending demands of France, Spain and Italy and the austerity ordered by the UK, Netherlands, Germany and others could not be bridged. Finally, HSBC’s preliminary manufacturing index for China suggested that the manufacturing sector expanded in November, representing the first gain in 13 months.
Greece back in the limelight; latest readings for UK & US Q3 GDP are released
The eurogroup troika (International Monetary Fund, European Commission, European Central Bank) meet again on Monday to resume talks on the €44bn bailout package for Greece. In the UK, the second estimate of Q3 gross domestic product (GDP) growth is revealed on Tuesday; the initial estimate was growth of 1% quarter-on-quarter and data is likely to show strong consumption growth. The following day, the consensus is for the November German Consumer Price Index to rise by 1.9% year-on-year (y-o-y), slightly lower than the 2% reported in October. German unemployment is expected to have risen by 15,000 in November and the unemployment rate unchanged at 6.9%; employment data has been mixed with manufacturing employment improving in November but services employment fell. Friday may reveal that the pace of Euro area inflation has slowed from 2.5% y-o-y to 2.4% thanks to lower energy prices.
In the US, the Conference Board Consumer Confidence Index is forecast to inch up from 72.2 a month ago to 73 in November. There may have been a slight fall in new home sales to 385,000 in October, while the final reading for Q3 GDP may be revised upwards because of higher exports. In Asia, Japanese industrial production is likely to have remained weak in October. Consensus forecasts look to a 2% contraction month-on-month, or -8% y-o-y as demand for Japanese products continue to suffer from political friction between China and Japan. China official manufacturing PMI is released on Friday and in line with the HSBC ‘flash’ reading for the sector, the November reading may have risen further from 50.2 a month ago to 50.8.