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Weekly Market Update

Notable events over the last week

The ECB dominated headlines last week underwhelming markets with its latest stimulus package, causing government bond prices to fall and the euro to jump in value. The Central Bank lowered its deposit rate by 10bps to -0.3% and pledged to extend its quantitative easing programme by at least six months through to March 2017, in a bid to tackle weak growth. The ECB fell short of market expectations with many predicting a greater reduction in the deposit rate and increase in monthly purchases from the current level of €60bn a month. President Draghi reassured markets on Friday during his speech at the Economic Club in New York, that the bank is prepared to act as required in order to stimulate inflation to its target level stating “There is no particular limit to how we can deploy any of our tools”.

Federal Reserve President, Yellen further supported market expectations of a December lift-off on Tuesday noting that unless normalisation occurs soon it is likely that policy will need to tighten “abruptly to keep the economy from significantly overshooting our goals”. Market expectations for a December rate rise is now 78% and about even odds of a second rate rise by March.

The US labour market continued to show signs of improvement this week with growth in payrolls and increased productivity. US non-farm payrolls grew 211,000 in November, while revisions added a total of 35,000 jobs to the September and October tallies, pushing October’s payrolls growth to 298,000. The unemployment rate remained unchanged at 5.0%, although the U6 broad measure of unemployment, which counts those in part-time jobs and those who have given up looking for work, edged up 0.1% for the first time since January to 9.9%. Non-farm productivity also saw a promising revision for Q3 clocking in at a 2.2% annual increase, up from 1.6% pace reported last month. The index is down from 3.5% recorded in Q2.

Elsewhere in the US, ISM manufacturing missed expectations contracting in November to its lowest levels since June 2009. The index fell to 48.6 in November from 51.0 in the previous month and missing expectations by 1.9. November marked the first month the index has dropped below 50.0 since 2012. A reading above 50.0 is indicative of economic expansion.

Chinese manufacturing PMI disappointed to the downside last week hitting 49.6 in November, its lowest reading since August 2012. Expectations had been for a reading of 49.8, flat on last month’s result. Separately, the Caixin China Manufacturing PMI ticked up to 48.6, beating market expectations of 48.3, in line with October’s reading.

India’s GDP rose 7.4% in Q2 ’15 in line with expectations and improving on Q1’s 6.9% gain. India reported robust growth in financial services, trade and hotels, with the strongest growth (9.3%) attributable to the manufacturing sector.

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