Weekly wrap: Tapering talk back on the menu – 05.11.2013
Source: Henderson Global Investors
Global equities delivered a mixed performance last week. The US Federal Reserve’s policy-setting Federal Open Market Committee (FOMC) concluded its two-day meeting on Wednesday, leaving asset purchases at the current rate of $85bn per month while sounding less alarmed about the state of the economy than most had expected. This forced the markets to reappraise the assumption that tapering asset purchases was some way off. In the lead up to Wednesday, risk assets were buoyed by a generally well-received corporate earnings season and mixed economic data in the US supporting a delay in tapering. Post the FOMC meeting, risk assets sold off on both sides of the Atlantic. US government bonds reacted to the prospect of reduced bond-buying too and the 10-year Treasury yield rose to 2.62% as its price fell. The US dollar, however, was a beneficiary of this, advancing against major currencies.
The euro was particularly weak against the dollar as inflation data increased expectations of a rate cut; the annual inflation rate in the eurozone declined to 0.7% in October, the lowest since November 2009. China’s central bank resumed its open market operations on Tuesday for the first time since 15 October, but this failed to have a major impact on liquidity concerns for the country’s financial markets. In Japan, the central bank raised its economic forecast for next year while emphasising their commitment to current stimulus policies. On Friday signs of resilience in the US and Chinese economies emerged through strong manufacturing activity data for October.
No less than six central banks from Australia, to Russia, to Europe are due to meet this week with no change in interest rates expected across the board. The Reserve Bank of Australia will meet on Tuesday, while the European Central Bank and the Bank of England have their rate setting meetings on Thursday.
This is a bumper week for economic data from both sides of the Atlantic. Factory orders in the US (the delayed August and September results) and final eurozone manufacturing Purchasing Managers’ Index (PMI) for October kick-start the releases on Monday. The US Institute for Supply Management’s (ISM) non-manufacturing survey is to be released on Tuesday with expectations of a slight decline in October. September’s industrial production in the UK (consensus: up 0.6% month-on-month, mom) and euro area retail sales (consensus: down 0.4% mom) are out on Wednesday.
The data docket then gets longer on Thursday with the advance release of the US Q3 gross domestic product (GDP) growth heading the list. The 1.9% (quarter-on-quarter, annualised) growth rate generally expected marks a decline from Q2 growth of 2.5%. Over in Europe, German industrial production will likely show activity was muted for September. Friday’s October US employment report takes the spotlight for the week. The data will be complicated by the recent government shutdown; however, following the very weak ADP employment report last week, expectations have been lowered. The consensus is for a rise of 125k in the pace of jobs added through non-farm payrolls, and the unemployment rate inching higher to 7.3% (7.2% in September).