Weekly wrap: Will Merkel seek some form of “grand coalition” with the Social Democrats?
Source: Henderson Global Investors
Global equity markets ended the week higher after the US Federal Reserve (Fed) unexpectedly announced that it would not begin scaling back its economic stimulus programme due to concerns that the US economy remains too weak. The US central bank also cut its growth forecast to between 2% and 2.3% this year. Among the main gainers was gold, which rose 4% on the day of the announcement, its biggest one-day jump in four years. Former US Treasury Secretary Larry Summers withdrew from the race to be the new head of the US central bank.
In the UK, retail sales volumes suffered an unexpected fall of 0.9% year-on-year in August after a surprisingly strong 1.1% rise in July. According to the Office for National Statistics, the main downward pressure came from food sales. Meanwhile, UK inflation as measured by the consumer prices index (CPI) fell from 2.8% in July to 2.7% in the year to August due to air fares, petrol and diesel, and clothing prices rising more slowly than in the same period last year. Minutes from September's Monetary Policy Committee meeting revealed a revision in its forecast for third quarter growth for the UK economy from 0.5% to 0.7%, and an unanimous vote to keep interest rates and quantitative easing (QE) on hold.
In the eurozone, Ireland pulled out of recession as gross domestic product (GDP) increased 0.4% in the second quarter, helped by a rebound in exports and a rise in consumer spending. The euro strengthened against the dollar on Monday morning following a convincing win for German Chancellor Angela Merkel in Sunday's election, taking 42% of the vote, but finishing just short of an absolute majority.
In Asia, HSBC's flash China Purchasing Managers' Index (PMI) for manufacturing rose from 50.1 to 51.2 in September, adding to signs of a rebound in its economy.
It is a relatively busy data week in the US. Budget talks continue in an attempt to pass a resolution to fund government operations beyond 1 October. On Tuesday, the Case-Shiller Home Price Index for July is expected to show another consecutive month of home price appreciation as rising mortgage rates drove many potential homebuyers into contracts. September’s Conference Board Consumer Confidence Index may fall to 80.4 due to generally disappointing economic data since August. On Wednesday, market consensus is for August durable goods orders to be flat after a 7.4% month-on-month (m-o-m) plunge in July. Meanwhile, new homes sales are expected to rise from 394k in July to 423k in August as homebuilder sentiment has improved. On Thursday, weekly initial jobless claims are released while real GDP may be revised higher to 2.6% in its third and final release. Meanwhile, pending home sales may decline 0.6% as mortgage purchase applications have continued to weaken. On Friday, the University of Michigan Sentiment Index is forecast to be revised up from 76.8 to 78.0 in the final September release as equity markets have rallied and gas prices have declined.
In Europe, the German IFO business climate survey on Tuesday may show a slight improvement from 107.5 to 108.0 in September. On Thursday, Q2 UK GDP is expected to remain unrevised at 0.7% despite increases in industrial production and construction output. On Friday, both Spanish and German inflation may tick lower due to falling energy prices.
In Asia, Japan’s CPI may show prices rising at a faster pace than expected on Friday as a strong economic recovery is helping to pass higher costs through to consumer prices.