Weekly Market Update
Notable events over the last week
- The FOMC unsurprisingly held off on raising rates yet again last week, however provided a strong indication that a 2015 lift-off is still firmly on the table. In the statement released on Wednesday, the FOMC specifically mentioned the “next meeting” and expressed less concern about international financial conditions; a significant factor holding the FED back in September. The market-based odds for a December rate rise are now 50/50,
- The Bank of Japan refrained from making any changes to its stimulus programme last week, with 8-1 in favour of no change. The decision came despite headline inflation slowing to 0.0% YoY, in line with expectations and to the lowest level now since May 2013. The core figure (ex fresh-food) stayed at -0.1% YoY and the core-core figure (ex food and energy) rose to +0.9% YoY. The current QE programme stands at ¥80tn with the country’s debt level now at circa 230% of GDP.
- The annual Chinese economic plenum communiqué proved relatively innocuous, with the ending of the one-child policy stealing headlines. The four day meeting was followed by a speech from Premier Li Keqiang who confirmed that the Chinese economy now needs growth of at least 6.53% over the next five years in order to achieve the government’s economic goals. While this doesn’t appear to be the new official target of the Chinese government, the comments are a clear signal that China’s government look set to lower their growth target. This was followed by official October manufacturing PMI out over the weekend which held steady at 49.8 against expectations for a rise to 50.0, marking the third straight month of contraction.
- US GDP slowed to a 1.5% annual rate in Q3, held back by a large inventory drag that took 1.44pp off the GDP. Consensus had been for a 1.6% rise after expanding 3.9% in Q2. Surprisingly, trade was a neutral factor, as exports and imports largely offset one another. Real final sales, a measure of economic output that excludes changes in inventories, rose 3%.
- US consumer spending also disappointed to the downside rising just 0.1% in September after climbing 0.3% and 0.4% in July and August. September’s increase was the smallest since March. The price index for Personal Consumption Expenditures, the Fed’s favoured inflation gauge, fell 0.1% in September and rose just 0.2% YoY. Core prices, excluding food and energy costs, rose 1.3% for the year.
- In the UK, economic growth slowed in Q3, weighed down by underwhelming construction and manufacturing performance. GDP grew by 0.5% down from 0.7% in Q2 and less than 0.6% predicted. The slowdown was largely attributable to a 0.3% decline in manufacturing and a 2.2% drop in construction, the largest fall in construction output in 3 years. On the other hand, the services sector, the largest part of the economy, grew 0.7%, up from 0.6% in Q2.
Q3 earnings season update
- In the US, 76% of S&P500 companies beat EPS estimates, on average by 4%. Actual EPS growth prints at -1% YoY and +3% ex Energy. 55% of the companies missed top-line estimates, the highest since Q2’12, with sales down 2% YoY and up 3% ex Energy.
- In Europe, only 49% of DJStoxx companies beat EPS estimates. Actual Q3 EPS growth prints at -8% YoY and -4% ex-Energy. 57% of the companies missed sales expectations. Top-line growth is also soft at -4% YoY and +2% ex-Energy.
- In Japan, 46% of Topix companies beat EPS estimates and growth is flat YoY. 56% of the companies beat revenue estimates, delivering growth of +6% YoY.
Coming up this week (Source Bloomberg)
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