Most equity indexes retreated last week as investor nerves were tested by the beginning of earnings season, further Brexit uncertainty and the looming U.S. presidential election (November 8). In Asia, the Shanghai Composite and Jakarta Composite advanced. In Europe, the CAC, DAX, MIB and IBEX were higher. In North America, the S&P/TSX Composite and Bolsa rallied.
Economic data were mixed with China's merchandise trade data dragging down global equities on Thursday. Demand was weak in nearly all of its major markets including the U.S., Europe and much of Asia. Inflation data soothed some of the concerns that the trade data exposed. Both the consumer and producer price indexes increased more than anticipated. The weaker trade readings raised concerns about the other September data and third-quarter GDP over the coming week. Sterling once again was in the spotlight as Brexit rhetoric in the UK and Europe sent the currency lower. After the flash crash on September 30, the pound has not really recovered.
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|
2015 |
2016 |
% Change |
|
Index |
Dec 31 |
Oct 7 |
Oct 14 |
Week |
2016 |
Asia/Pacific |
|
|
|
|
|
|
Australia |
All Ordinaries |
5344.6 |
5548.5 |
5518.47 |
-0.5% |
3.3% |
Japan |
Nikkei 225 |
19033.7 |
16860.1 |
16856.37 |
0.0% |
-11.4% |
|
Topix |
1547.30 |
1350.61 |
1347.19 |
-0.3% |
-12.9% |
Hong Kong |
Hang Seng |
21914.4 |
23851.8 |
23233.31 |
-2.6% |
6.0% |
S. Korea |
Kospi |
1961.3 |
2053.8 |
2022.66 |
-1.5% |
3.1% |
Singapore |
STI |
2882.7 |
2875.2 |
2815.24 |
-2.1% |
-2.3% |
China |
Shanghai Composite |
3539.2 |
* |
3063.81 |
2.0% |
-13.4% |
|
|
|
|
|
|
|
India |
Sensex 30 |
26117.5 |
28061.14 |
27673.60 |
-1.4% |
6.0% |
Indonesia |
Jakarta Composite |
4593.0 |
5377.2 |
5399.89 |
0.4% |
17.6% |
Malaysia |
KLCI |
1692.5 |
1665.4 |
1658.97 |
-0.4% |
-2.0% |
Philippines |
PSEi |
6952.1 |
7578.3 |
7389.30 |
-2.5% |
6.3% |
Taiwan |
Taiex |
8338.1 |
9265.8 |
9165.17 |
-1.1% |
9.9% |
Thailand |
SET |
1288.0 |
1504.3 |
1477.61 |
-1.8% |
14.7% |
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
UK |
FTSE 100 |
6242.3 |
7044.4 |
7013.55 |
-0.4% |
12.4% |
France |
CAC |
4637.1 |
4449.9 |
4470.92 |
0.5% |
-3.6% |
Germany |
XETRA DAX |
10743.0 |
10490.9 |
10580.38 |
0.9% |
-1.5% |
Italy |
FTSE MIB |
21418.4 |
16405.3 |
16591.37 |
1.1% |
-22.5% |
Spain |
IBEX 35 |
9544.2 |
8624.3 |
8767.90 |
1.7% |
-8.1% |
Sweden |
OMX Stockholm 30 |
1446.8 |
1451.7 |
1446.00 |
-0.4% |
-0.1% |
Switzerland |
SMI |
8818.1 |
8124.6 |
8089.91 |
-0.4% |
-8.3% |
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|
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|
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North America |
|
|
|
|
|
|
United States |
Dow |
17425.0 |
18240.5 |
18138.38 |
-0.6% |
4.1% |
|
NASDAQ |
5007.4 |
5292.4 |
5214.16 |
-1.5% |
4.1% |
|
S&P 500 |
2043.9 |
2153.7 |
2132.98 |
-1.0% |
4.4% |
Canada |
S&P/TSX Comp. |
13010.0 |
14566.3 |
14584.99 |
0.1% |
12.1% |
Mexico |
Bolsa |
42977.5 |
47596.6 |
47701.450 |
0.2% |
11.0% |
European equities began and ended the week on a positive note. However, on the three days in between, they declined. The CAC and DAX were able to recoup their mid-week losses however, and climbed 0.5 percent and 0.9 percent respectively on the week. However, both the FTSE and SMI retreated 0.4 percent. Brexit weighed on equities and on sterling in particular as rhetoric flew back and forth across the English Channel. And the distress at Deutsche Bank continued to weigh on banks especially.
Investor concerns over a "hard Brexit" eased after UK Prime Minister Theresa May allowed the Parliament to decide on the Brexit strategy. Bloomberg reported that May has accepted the motion from the opposition Labour Party calling for a "full and transparent debate on the government's plan for leaving the EU." The Parliament will debate a motion that enables the MPs to "properly scrutinize that plan" before triggering Article 50, the formal mechanism of withdrawing from the European Union. Late Tuesday, May approved an amendment that effectively accepted the motion, while suggesting that the government will reject any attempt to block Brexit or "undermine the negotiating position of the government."
According to Bank of England Governor Mark Carney, the BoE is willing to tolerate above target inflation to support growth and employment after 'Brexit'. Inflation expectations have risen after the sharp decline in the value of the pound sterling after the surprise vote to exit the EU. The Bank is "willing to tolerate a bit of overshoot in inflation over the course of the next few years" in order to avoid an increase in unemployment and, "to cushion the blow". The BoE's inflation target is 2.0 percent.
Along with the fallout from Brexit during the week, worries about the Federal Reserve tightening monetary policy, U.S. presidential elections on November 8 and an Italian referendum also in November kept investors wary. And traders were in a cautious mood before of the publication of the minutes from the September FOMC meeting. Investors were hopeful that the minutes, which were released after markets closed in Europe on Wednesday, would provide some clues regarding the outlook for U.S. interest rates. While no one is expecting a move in November — the U.S. presidential election is just a week after the November FOMC meeting — many believe a December rate increase is likely.
Most equity indexes retreated on the week with only the Shanghai Composite (up 2.0 percent) and the Jakarta Composite (up 0.4 percent) increasing. Declines ranged from the Nikkei (down 3.72 points) to the Hong Kong (down 2.6 percent). Japanese markets continued to fluctuate inversely with the value of the yen, with exporters gyrating as they tried to protect overseas earnings and price margins. Investors ignored disappointing machine orders — they declined less than expected.
Shares were dragged down Thursday after the minutes from the most recent Federal Reserve FOMC meeting were published. The minutes boosted expectations for an increase to the fed funds rate in December.
However, Asian stock markets closed mostly higher on Friday, erasing some of the losses that were incurred previously as stronger than expected Chinese inflation data eased worries about the health of the economy. The data came just a day after China's merchandise trade numbers dampened global sentiment. China's inflation accelerated more than expected in September and producer prices increased for the first time since 2012 on higher commodity prices.
The Bank of Korea kept its policy interest rate at 1.25 percent. The vote was unanimous by its seven member monetary policy board. Governor Lee Ju-yeol said Thursday that he was keeping an eye on the crisis at Samsung Electronics over its Galaxy Note 7s and the labor strike at Hyundai Motor. The central banker said that troubles at Samsung Electronics and Hyundai Motor were a concern and that he was watching out for any negative impact on the economy.
The U.S. dollar advanced against the pound sterling, euro, Swiss franc and yen on the week. However, the currency retreated against the commodity currencies — the Canadian and Australian dollars. The Canadian and Australian dollars benefited from rising oil prices on the week. The euro has been steadily drifting downward in relation to its U.S. counterpart as monetary policy goes in opposite directions. The European Central Bank is expected to continue asset purchases in its effort to stimulate inflation while the Federal Reserve is preparing to increase U.S. interest rates for a second time — the last increase was in December 2015.
Sterling continues to be pounded thanks to Brexit. Since June 23 traders now have to follow the plethora of new developments that continue to appear daily on the continent and in the UK. Sterling's day-to-day movements have become increasingly erratic and often in response to relatively innocuous news.
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|
2015 |
2016 |
% Change |
|
|
Dec 31 |
Oct 7 |
Oct 14 |
Week |
2016 |
U.S. $ per currency |
|
|
|
|
|
|
Australia |
A$ |
0.7288 |
0.759 |
0.761 |
0.3% |
4.4% |
New Zealand |
NZ$ |
0.6833 |
0.716 |
0.708 |
-1.0% |
3.7% |
Canada |
C$ |
0.7231 |
0.753 |
0.761 |
1.1% |
5.3% |
Eurozone |
euro (€) |
1.0871 |
1.120 |
1.098 |
-1.9% |
1.0% |
UK |
pound sterling (£) |
1.4742 |
1.244 |
1.218 |
-2.1% |
-17.4% |
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|
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Currency per U.S. $ |
|
|
|
|
|
|
China |
yuan |
6.4937 |
6.672 |
6.728 |
-0.8% |
-3.5% |
Hong Kong |
HK$* |
7.7501 |
7.758 |
7.759 |
0.0% |
-0.1% |
India |
rupee |
66.1537 |
66.685 |
66.715 |
0.0% |
-0.8% |
Japan |
yen |
120.2068 |
102.990 |
104.250 |
-1.2% |
15.3% |
Malaysia |
ringgit |
4.2943 |
4.157 |
4.195 |
-0.9% |
2.4% |
Singapore |
Singapore $ |
1.4179 |
1.373 |
1.391 |
-1.3% |
2.0% |
South Korea |
won |
1175.0600 |
1115.640 |
1132.320 |
-1.5% |
3.8% |
Taiwan |
Taiwan $ |
32.8620 |
31.464 |
31.669 |
-0.6% |
3.8% |
Thailand |
baht |
36.0100 |
34.886 |
35.350 |
-1.3% |
1.9% |
Switzerland |
Swiss franc |
1.0014 |
0.9777 |
0.9903 |
-1.3% |
1.1% |
*Pegged to U.S. dollar |
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Source: Bloomberg |
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August industrial production excluding construction was up 1.6 percent on the month after a significantly smaller revised 0.7 percent decline in July. As a result, annual workday adjusted growth jumped from minus 0.5 percent to plus 1.8 percent, its highest reading since April. August's monthly bounce was broad-based with just nondurable consumer goods (minus 0.6 percent) failing to register a sizeable increase. Consumer durables (4.3 percent) and capital goods (3.5 percent) were especially strong but intermediates (1.4 percent) also easily more than reversed July's decline. Energy (3.3 percent) similarly posted solid growth. Among the larger Eurozone states, France jumped 2.0 percent monthly and Germany's increase (3.1 percent) was even stronger. Italy (1.7 percent) and Spain (1.8 percent) similarly registered more than solid advances.
August seasonally adjusted merchandise trade surplus was €22.2 billion following an unrevised €19.4 billion excess in July. Unadjusted, the black ink stood at €20.0 billion after an unrevised €19.4 billion at the start of the quarter. The surprisingly strong headline reflected a 5.4 percent monthly jump in exports that more than offset both July's 2.6 percent decline and a 3.1 percent gain in imports. The bounce followed a generally poor run that saw exports decline nearly 4 percent between March and July. The August level (€102.3 billion) was also only just short of the record high. The rebound in imports from a 0.8 percent drop similarly ended a weak period and they too were close to their all-time peak. Annual growth of exports now stands at 9.8 percent while imports are 5.3 percent higher on the year.
ZEW's October survey shows analysts have become a little more confident about the German economy. The current conditions index reading was 59.5, up 4.4 points that more than reversed September's 2.5 point drop to leave the measure at its highest mark since September 2015. However, the index was still a couple of ticks short of its level at the start of the year. At the same time, expectations gained 5.7 points to yield a 4 month high of 6.2 although this too was well short of its 2016 peak of 19.2 recorded in June.
August machine orders (excluding volatile items such as ships and those from electric power companies) dropped 2.2 percent on the month after increasing 4.9 percent in July. This series is considered a proxy for capital expenditures. On the year, machine orders rose 10.2 percent after an increase of 9.4 percent in July. Officials have retained their forecast for this core measure of orders to increase by 5.2 percent in the three months to September, compared with a fall of 9.2 percent in the previous quarter.
August merchandise trade surplus was $42.0 billion, down from $52.0 billion in August. The surplus was the smallest since March. The surplus was also well below the level of $59.6 billion recorded in September 2015. Exports declined a surprising 10.0 percent on the year after sliding 2.8 percent in August. Imports were down 1.9 percent after increasing 1.5 percent in August. External demand weakened in September for most of China's major trading partners. Exports to the U.S. dropped 8.1 percent, declined 9.8 percent to the EU and 7.0 percent to Japan. This more pronounced weakness in Chinese exports in September came despite further depreciation in the domestic currency, with officials arguing that this has had little impact on China's trade performance.
September consumer price index was up 1.9 percent on the year after increasing 1.3 percent in August. On the month, the CPI was up 0.7 percent. For the year to date, the CPI was 2.0 percent higher than the same months a year earlier. Food prices accounted for much of the increase. Food accelerated from 1.3 percent in August to 3.2 percent in September, close to where it was in July and still well below the recent highs of around 7.5 percent seen earlier this year. Food prices, along with tobacco and liquor, account for roughly a third of the basket of goods that makes up China's CPI. Price pressures, however, also picked up more broadly in September, with non-food inflation increasing to 1.6 percent from 1.4 percent in August. Inflation rates picked up for transportation, communication, recreation and education, but were steady for housing and health care and fell modestly for clothing. Inflation rates were also higher both in urban areas, up from 1.4 percent to 2.0 percent, and in rural areas, up from 1.0 percent to 1.6 percent.
September producer price index was up 0.1 percent on the year after declining 0.3 percent in August. The PPI was up 0.5 percent on the month after increasing 0.2 percent in August. In year-to-date terms, the PPI was down 2.9 percent. The increase in the headline inflation rate was driven by stronger price pressures in most components. Annual inflation rose from minus 1.7 percent in August to minus 0.6 percent in September for raw materials procurement, fuel & power, and from minus 1.0 percent to plus 0.1 percent for raw materials. Inflation rates also rose for metals and raw chemical materials. Annual inflation for consumer goods was unchanged at zero percent for the third consecutive month.
Most equity markets retreated for the week. The pound sterling continued to decline against the U.S. dollar. Economic data were mixed with China's disappointing merchandise trade data being offset by rising consumer and producer prices.
Both the Bank of Canada and the European Central Bank meet on Wednesday and Thursday respectively. No policy change is expected from the BoC. The ECB is also expected to leave its policy unchanged but President Mario Draghi will have a tricky task to give just enough clues about the bank's next move but not fuel undue expectations that could perturb markets. China will report third quarter GDP figures Wednesday, with data likely showing steady growth at 6.7 percent, as increased budget spending and a property boom offset stubbornly weak exports. In the U.S., the Federal Reserve will publish its Beige Book in preparation for its November 2 FOMC meeting. In the UK, consumer and producer price indexes for September will be reported along with labour market data and retail sales.
Central Bank activities |
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October 19 |
Canada |
Bank of Canada Monetary Policy Announcement |
|
United States |
Federal Reserve Beige Book Published |
October 20 |
Eurozone |
European Central Bank Monetary Policy Announcement |
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The following indicators will be released this week... |
Europe |
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|
October 17 |
Eurozone |
Harmonized Index of Consumer Prices (September final) |
October 18 |
UK |
Consumer Price Index (September) |
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Producer Price Index (September) |
October 19 |
UK |
Labour Market Report (September) |
October 20 |
Germany |
Producer Price Index (September) |
|
UK |
Retail Sales (September) |
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|
Asia/Pacific |
|
|
October 19 |
China |
Gross Domestic Product (Q3.2016) |
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Industrial Production (September) |
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Retail Sales (September) |
October 20 |
Australia |
Employment and Unemployment (September) |
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Americas |
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|
October 18 |
Canada |
Manufacturing Sales (August) |
October 21 |
Canada |
Consumer Price Index (September) |
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|
Retail Sales (August) |
Anne D Picker is the author of International Economic Indicators and Central Banks.
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