Weekly wrap: What will the latest FOMC minutes reveal about the Fed’s tapering intentions? – 20.08.2013
Source: Henderson Global Investors
Global equities were mixed last week as US and UK equities ended the week lower while Europe, Japan and Hong Kong registered gains. US ten-year government bond yields hit 2.87%, a two-year high, driven by encouraging labour and housing market figures and still modest inflation. Meanwhile, equivalent German Bund yields rose 21 basis points over the week due to strong gross domestic product (GDP) growth. Gold gained $60 ending the week at $1,368 an ounce while Brent crude oil rose above $111 a barrel as unrest in Egypt threatened supply disruption. US consumer prices inflation increased 0.2% to an annual rate of 2% in July due to housing, food and clothing costs according to the US Department of Labor.
The eurozone emerged from its longest recession in history, driven by France and Germany. According to Eurostat, the euro area grew 0.3% in the second quarter. Germany, the eurozone’s largest economy expanded 0.7% while France grew 0.5%. Meanwhile, eurozone industrial production rose 0.7% from the previous month, driven by a 4.9% increase in the production of durable consumer goods. UK retail sales jumped 1.1% in July from the previous month according to the Office for National Statistics. Sales increased 3% compared with last year, which is the fastest annual rise since January 2011. UK consumer price index (CPI) inflation fell from 2.9% in June to 2.8% in July, as the cost of clothing, leisure and cultural activities fell. UK unemployment fell 4,000 to 2.5 million in the second quarter while the rate remained at 7.8%. Minutes from the latest Bank of England Monetary Policy Committee meeting showed that governor Mark Carney received eight out of nine votes in favour of his policy on forward guidance.
According to preliminary figures, Japan’s GDP grew at an annualised rate of 2.6% in the second quarter, which was the third consecutive quarter of expansion.
This week is expected to be relatively light on data. In the US, minutes from the latest meeting of the Federal Open Market Committee (FOMC) meeting are released on Wednesday. The minutes may provide some insight into how strong the Fed’s conviction is for ‘tapering’ to begin in September. Also on Wednesday, existing home sales are expected to increase modestly to 5.1m in July. On Thursday, analysts expect initial jobless claims may rise to 335,000 for the week ending 17 August. New home sales in July are released on Friday and may dip slightly from 497k in June as mortgage purchase applications have fallen over the month, indicating a decline in signed contracts. The Jackson Hole Economic Symposium takes place between Thursday and Saturday.
In Europe, further improvements in purchasing managers’ indices (PMI) for France, Germany and the euro area are expected on Thursday. At the end of the week, second estimates of GDP in the UK and Germany should provide some detail on the growth drivers and sustainability of the upturn.
Japan's July trade balance data was released on Monday. Japanese exports rose 12.2% year-on-year (y-o-y) to July, driven by a weaker yen and a recovery in overseas economies, while imports increased 19.6% y-o-y. On Wednesday, Chinese PMI should provide clues about the severity of the country’s slowdown.