Weekly wrap: Reasons to cheer: a dovish Yellen and China’s economic blueprint for the next 10 years – 19.11.2013
Source: Henderson Global Investors
Equity markets generally finished the week on a positive note. On Thursday Janet Yellen, the nominee to replace Ben Bernanke as Federal Reserve (Fed) Chair, struck a dovish tone at her confirmation hearing before the Senate Banking Committee, defending the Fed’s asset purchase programme. The prospect of continued monetary policy stimulus from the US cheered the markets, in particular emerging market assets that had come under pressure due to tapering concerns.
Across the Atlantic, the UK FTSE 100 suffered following a hawkish Bank of England quarterly inflation report released on Wednesday, striking an upbeat note on the state of the economy. Following sharp falls in inflation and unemployment the report raised expectations of higher interest rates to come. UK consumer price inflation surprised by falling to a 13-month low of 2.2% in October month-on-month (mom), while the unemployment rate fell to its lowest level in three years at 7.6%. Elsewhere in Europe, economic growth in Q3 disappointed. Growth in the eurozone fell to just 0.1%; Germany slipped to 0.3% from 0.7% in Q2, while France and Italy both shrank by 0.1%.
In Asia, Japan’s Nikkei 225 reaped the benefits of a weaker yen, ending its week-long rally by rising to its highest level in six months and crossing the 15,000 barrier on Friday. Economic growth also came higher than expected in Q3 at an annualised 1.9% (0.5% quarter-on-quarter). The vague communique released at the conclusion of the Chinese government’s third plenum meeting on Wednesday disappointed the markets, but additional details released late on Friday sent Chinese shares racing during Monday’s trading session.
A number of US Fed officials are due to speak this week, starting with Bernanke’s Economists Club speech on Tuesday. As well as analysing the speeches, markets will be looking for clues on tapering of asset purchases and any change to forward guidance in the release of the minutes of the last Fed meeting mid-week. In terms of economic data releases, US retail sales and consumer price inflation for October will be out on Wednesday. Consensus expectations are for a monthly rise in retail sales of 0.1%, while consumer price inflation is expected to remain unchanged after a rise of 0.2% in September. On Thursday, producer prices for finished goods are anticipated to be soft at 0.2%, while November’s Philadelphia Fed survey is likely to fall to 15.0, after registering 19.8 in October.
Over in Europe, speeches by a number of European Central Bank (ECB) officials, including the president Mario Draghi in Berlin on Thursday, will be closely watched. The region is hovering on the brink of a Japanese-style deflation given the recent fall in consumer price inflation, which was met by the ECB’s surprise rate cut in early November. The German ZEW survey of current situations starts off the round of significant data on Tuesday, which is likely to have improved in November from 29.7 to 31. Then on Thursday a raft of flash Purchasing Managers’ Index (PMI) releases are due for the euro area and individual countries. The euro area composite PMI is expected to edge higher in November from 51.9 to 52.0, given an improvement in the manufacturing and services components. The Munich-based IFO Institute for Economic Research’s Business Climate survey then rounds up the week on Friday; a rise to 107.7 in November is expected from 107.4 in October.