Weekly wrap: Chinese growth seen to stabilise; S&P 500 hits a five-year high
Last week saw a continuation of the more bullish sentiment across global equity markets this year. During the week the S&P 500 reached highs not seen since 2007, while the VIX gauge of ‘investor fear’ slumped below the 13 level. Investors were buoyed by China’s Q4 growth estimate, which came in slightly higher at 7.9% year-on-year. Growth of 7.8% was posted for 2012 as a whole. Meanwhile, ‘core’ government (UK, US, Germany and Japan) bond yields fell over the week. Oil prices initially came under pressure from the prospect of weaker demand in 2013, but later gained support from supply concerns owing to military activity in Algeria and Mali.
In the US, the ‘fiscal cliff’ concerns dragged on, while Federal Reserve Chairman Ben Bernanke delivered a cautiously optimistic outlook for the US economy but gave no indication as to when the central bank’s bond-buying programme would be wound down. Weekly initial unemployment claims hit a five-year low to a seasonally adjusted 335,000, while housing starts surged to their highest level in more than four years, up 12.1% to an annual rate of 954,000 units in December. Among Asian stock markets, Japan was the strongest owing to a weakening yen; the Nikkei 225 has returned 5.0% year-to-date.
In Europe, German gross domestic product (GDP) growth in Q4 2012 fell by a larger-than-expected 0.5% (first estimate). This means growth fell sharply from 3.0% a year ago to 0.7% in 2012 as the eurozone crisis and weaker global growth hampered exports and company investment. Meanwhile, UK December Consumer Price Index (CPI) inflation stubbornly remained at 2.7% annualised, the same rate since the October rise owing largely to a hike in utility bills. The Office for National Statistics reported that UK retail sales were down 0.1% in December, or an annual rise of 0.3%. Economists had forecast a month-on-month rise of 0.2%.
UK Q4 GDP, eurozone January PMIs; Bank of Japan policy decision
In the UK, the release of December unemployment data (Wednesday) may reveal a fall in the claimant count (consensus -3,000). The much anticipated preliminary estimate of Q4 2012 GDP is unveiled on Friday; the expectation is for a 0.1% contraction, which would bring growth for the year as a whole to 0.3%. In Europe, the focus will be on initial purchasing managers’ index (PMI) readings for the eurozone (Thursday). Both the manufacturing and services indices are likely to have inched up in January but remain below 50 (indicating contraction). Two January German confidence surveys are released and are expected to show improvement: ZEW investor confidence (Tuesday) and the Ifo business sentiment (Friday).
In the US, it is a quiet week for economic releases following the Martin Luther King, Jr. holiday. Analysts are expecting December existing home sales to rise from 5.04m in November to 5.1m month-on-month (Tuesday); while new home sales are estimated to have increased from 377,000 a month ago to 385,000 (Friday). On Thursday the January Markit US Manufacturing PMI (preliminary consensus 53.0, December=54.0) will provide colour on the manufacturing sector. In Japan, the end of the two-day central bank policy board meeting (Tuesday) may reveal additional monetary stimulus; there have been calls for a rise in the inflation target to 2% to facilitate Prime Minister Shinzo Abe’s plans for looser monetary policy.