Weekly wrap: Another week to play ‘second-guessing the Fed’ on taper timing – 10.12.2013
Source: Henderson Global Investors
Investors had plenty to digest over the week with a string of economic releases from both sides of the Atlantic and central bank meetings in Europe. Major stock indices finished the week lower as investors remained cautious trying to second-guess the US Federal Reserve (Fed) on the timing of a reduction in its quantitative easing programme, which has been supporting risk appetite. Among the important economic releases in the US, November’s national factory activity and the employment report both came in above expectations giving confidence that economic recovery was gaining strength. Furthermore, the Fed’s Beige Book of economic activity also pointed to ‘modest to moderate growth’ in business activity, while US gross domestic product (GDP) growth for Q3 was revised up to 3.6% (from 2.8% previously).
In Europe, both the European Central Bank (ECB) and the Bank of England left monetary policy unchanged at their rates setting meetings, however, the ECB cut its inflation forecasts for the area to 1.1% next year from 1.3% previously. In the UK, the Office for Budget Responsibility (OBR) upgraded the UK’s economic growth forecast for 2014 to 2.4% from March’s 1.8%; and the Chancellor, George Osborne, delivered his Autumn Statement on Thursday stating that the economic plan was working.
In Asia, Chinese Purchasing Manufacturer’s Index (PMI) data suggested resilience, remaining above the 50 mark that denotes expansion. While the HSBC/Markit PMI edged down slightly to 50.8 in November, the official PMI, which focuses more on bigger firms, held steady at 51.4. Elsewhere, Japan’s PMI releases pointed to the fastest manufacturing growth in more than seven years.
New figures released overnight on Monday revealed that Chinese inflation slowed in November (rising 3.0% year-on-year) making it easier for the government to push ahead with financial reforms. In Japan a sharp downward revision to Q3 GDP (from 1.9% to 1.1% annualised) signalled that the economy has cooled since the initial burst in growth in December 2012 following the release of the economic stimulus package by Shinzo Abe.
Eurozone finance ministers are due to meet in Brussels on Monday amid concerns for the fiscal situation in the Greek and Slovenian economies. All 28 European finance ministers then meet on Tuesday to try to break a deadlock in the discussions on the banking union. Tuesday’s economic releases include November’s RICS house price balance in the UK, which is expected to signal further strength in most aspects of the housing market. On the same day October’s industrial production figures for France and Italy are likely to show a month-on-month (mom) gain of 0.1% for France, while remaining steady at 0.2% in Italy. The same statistic for the euro area is to be released on Thursday with expectations of a small mom gain of 0.3%.
In the US, significant data releases begin on Thursday. The first of which, November’s retail sales, is likely to be strong based on notable gains in monthly auto sales. Total retail sales are generally expected to have increased by 0.5%. On the inflation front, import prices are expected to show a contraction in November (consensus 0.8%), while Friday’s release of producer prices for finished goods could remain unchanged after an energy-induced 0.2% drop in October.