Weekly wrap: Markets end higher on Bernanke bounce – 16.07.2013
Source: Henderson Global Investors
Global equities posted another week of gains, after markets warmed to comments by Federal Reserve Chairman Ben Bernanke. The release of the latest Federal Open Market Committee’s (FOMC) meeting minutes revealed that while some FOMC members thought the Fed should scale back its asset purchases, this should only happen when there is an acceleration in the economy as well as jobs growth. However, almost half of the 19 FOMC participants said the Fed should exit quantitative easing by year-end. Speaking to the press, Bernanke made surprisingly dovish remarks, saying that "highly accommodative policy is needed for the foreseeable future". The sentiment was carried across to the bond markets where the US 10-year Treasury yield ended the week down (prices rose) by over 10bp.
In Europe, Greece’s latest bailout tranche was released after the prime minister agreed to further public sector job cuts. Portugal's political crisis worsened after its president rejected a proposed cabinet reshuffle by the coalition government and called for early elections next year. The yield on Portuguese 10-year government bonds soared above 7.50% (prices fell) during the week.
In China, consumer prices index (CPI) inflation rose to 2.7% in June year-on-year (yoy), the highest level in four months. Markets will be looking to see if higher inflation will lead the authorities to continue to tighten policy or provide more support. Both imports and exports fell in June; exports suffered a surprise fall of 3.1% yoy (+1% a month ago), reflecting a combination of strong wages growth and yuan strength. Adding to the bearishness, the finance minister signalled that the Chinese economy could undershoot the government’s target for growth this year, and that the Chinese authorities may even accept an annual growth rate of below 7%
China Q2 GDP growth in line with official forecasts
At the start of the week investors are digesting the news that China’s economy grew by 7.5% yoy in Q2 2013, while this represents a second quarter of weaker economic growth, of some comfort is the fact that domestic demand has been countering the weakness in exports, with growth in the services sector outpacing that of industrials. June retail sales came in slightly firmer, up 13.3% yoy (+12.8% in May).
US data releases include the July reading of the Empire State survey, which measures manufacturing activity in New York and Philadelphia (Monday). Retail sales (including autos) are expected to record a 0.8% month-on-month (mom) gain in June (Tuesday). There may be a rise in June CPI inflation owing to a surge in retail energy prices; the consensus is for a 0.3% gain mom. Slight rises are also forecast for the June industrial production and manufacturing prints. Housing starts and building permits are anticipated to show that residential construction activity continues to gather pace in June; building permits may have reached the 1 million mark (annualised) for the first time in five years.
Analysts expect June UK annual CPI inflation (Tuesday) to have risen to 3.0% (+2.7% in May) on higher fuel prices. The Bank of England’s latest monetary policy meeting minutes will reveal if new governor Carney voted for more quantitative easing. The UK ILO unemployment report is released on Wednesday, while retail sales ex auto fuel (Thursday) may show a more modest increase of 0.2% mom in June following May’s strong 2.1% rise. Finally, the consensus is for German economic sentiment to improve in July; analysts are predicting the ZEW survey reading will rise to 40.0 from 38.5 in May (Tuesday).
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