Weekly wrap: Will the feelgood factor continue? – 10.09.2013
Source: Henderson Global Investors
Equities globally ended the week higher, despite a nervous start given tensions over potential military intervention in Syria and ahead of the latest US Employment Report. While Wall Street initially fell when President Obama’s call to action on Syria received support from Congress, this was later reversed with stronger August data releases. These included improved Institute for Supply Management (ISM) manufacturing and services readings, a slower decline in July factory orders, and higher construction spending. Less positively, July consumer spending grew just 0.1%. The closely watched non-farm payrolls report mildly disappointed, with only 169,000 jobs created in August, but the unemployment rate ticked down to 7.3%. Nevertheless, some analysts still expect the US Federal Reserve to announce a reduction in its asset purchases (tapering) this month. US 10-year Treasury yields finished the week just below the psychological 3% threshold (prices fell).
In the UK, the service sector recorded its strongest growth in six years in August, while British manufacturing received another boost when the Markit/CIPS PMI (purchasing managers’ index) jumped to 57.2 in August, marking a fifth consecutive month of expansion (reading above 50). The final estimate of Markit’s eurozone composite (PMI) for August came in at 51.5, confirming a modest economic recovery in the region. Elsewhere, official data showed that China’s manufacturing sector expanded further in August as domestic demand improved. The Australian economy recorded second quarter growth of 0.6% quarter-on-quarter (2.6% annual rate). On Saturday, the Liberal-National coalition crushed the governing Labor party in the general election; Liberal leader Tony Abbott is set to become prime minister.
The week has started off with the feelgood factor spreading through Asian markets. In Japan, the final estimate of second quarter gross domestic product growth came in at an annualised rate of 3.8%, trumping the preliminary reading of 2.6%. This comes hot on the heels of the announcement that Tokyo has won the bid to host the 2020 Summer Olympics. News that Chinese trade had rebounded also provided another boon; shipments increased 7.2% in August from a year earlier. Looking ahead, Chinese industrial production, retail sales and money supply data will be published on Tuesday. Analysts expect August industrial production to have grown by 9.9% year-on-year, a slight improvement from July’s housing-driven increase of 9.7%.
Among the key US data releases are retail sales and consumer confidence data from the University of Michigan on Friday. Consensus data show August retail sales are expected to rise 0.4% month-on-month (mom); higher sales of autos and building materials could result in a third consecutive month of rises. On Thursday, the latest federal budget is announced, along with weekly initial jobless claims. The main economic release for the UK is the July unemployment report. The market will be keen to see if the unemployment rate stays at 7.8% or creeps further above the Bank of England’s 7.0% threshold outlined by governor Mark Carney in his forward guidance announcement. July’s industrial production figures are due out for France, Italy and the broader eurozone. Consumer prices data are also published for Germany, France, Italy and Spain.