Weekly wrap: A week of two halves: before FOMC and after – 17.09.2013
Source: Henderson Global Investors
Markets began the week in an upbeat mood with Friday’s release of US nonfarm payrolls, which revealed fewer jobs added in August than expected, easing investors’ concerns on the pace of reduction, or tapering, of quantitative easing (QE). Further developments over the weekend were also instrumental in improving sentiment. The Australian election win for the conservative opposition boosted Australian share prices, which were further lifted on the upbeat trade and inflation data releases from China, the latter being the country’s main consumer of natural resources. Meanwhile, shares rose in Tokyo after an upward revision to Q2 growth, to an annualised 3.6%, and also, the country’s win to host the 2020 Olympics.
The positive data releases from China continued with better-than-expected industrial production and retail sales for August, boosting optimism that China has overcome the slowdown in activity from earlier in the year. Geopolitical tensions also began to recede with signs of progress on Syria. In the UK, the unemployment rate dipped from 7.8% to 7.7% in the three months to July, lower than the markets had expected. But the risk sentiment paused mid-week as caution took hold ahead of the US Federal Open Market Committee (FOMC) meeting on 17-18 September, where it is generally expected that a mini-tapering of the $85bn-a-month asset purchase programme will be announced. The looming issue of the US debt ceiling also resurfaced.
While the highlight of the week will be the FOMC meeting and Federal Reserve (Fed) chairman Bernanke’s post-meeting comments, this week has begun with a bang. Lawrence Summers, widely expected to replace Ben Bernanke as the next Fed chairman, stepped aside from the race on Sunday. This boosted global stocks and risk assets on Monday as investors’ concerns were allayed about a faster withdrawal of stimulus from the world’s biggest economy.
Risk appetite is expected to remain firm this week as Fed tapering is now largely priced in, with markets generally expecting a $10bn reduction in monthly purchases. This is also a busy week for data in the US. On Monday, the Empire manufacturing index is expected to show a modest expansion in September in the New York Fed district, while industrial production for August could be higher by 0.4% month-on-month, after July’s flat performance. As well as the FOMC rate decision and press conference, other releases to look for on Wednesday include the NAHB Housing Market Index, and the figures for housing starts and permits. Existing home sales and the Philadelphia Fed survey for September round up the week on Thursday, the former is expected by analysts to have fallen in August.
In Europe, the upcoming German federal elections on Sunday 22 September will be the focus of the week. August inflation data for the euro area and the UK, out on Monday and Tuesday, are generally expected to be lower (consensus: 1.3% and 2.7% year-on-year, respectively). Additionally, Germany’s ZEW economic sentiment survey is released on Tuesday. Asian markets are to have a quieter week with holidays in Tokyo (Monday) and China (Thursday and Friday due to the mid-Autumn festival). Japan’s August trade data is due to be published on Thursday.