Read on for an overview of the major market and macroeconomic events for the week ending 27 March. This week’s roundup includes PMI (Purchasing Managers Index) figures from the UK, US and China, continued slowdown in the Chinese economy, and an overview of the performance of the major asset classes over the last seven days.
The latest updates from the US
The final reading of US Q4 GDP showed no change at 2.2% annualised, disappointing some that had expected the number to be revised back up. Initial estimates for US corporate profits also fell -1.6%, largely driven by the strength of the dollar. Forward-looking measures were more optimistic, with both Manufacturing and Services PMI readings suggesting faster growth – coming in ahead of expectations at 55.3 and 58.6 respectively. However, these were offset by disappointing durable goods orders and weaker consumer confidence as shown in the University of Michigan survey.
Positive PMI figures coming out of Europe
European measures were more consistently positive. Consumer confidence improved further, from -6.7 to -3.7, while flash PMIs came in stronger than expected. Markit Manufacturing PMI for March was 51.9 up from 51.0, whilst Services PMI increased from 53.7 to 54.3. Despite this, unemployment in the Eurozone remains stubbornly high at 11.2%, and the ECB’s own projections suggest this will remain in double-digits for the next few years despite the QE programme.
Continued economic slowdown for China
Still on PMIs, and China disappointed last week with flash Manufacturing PMI figures courtesy of HSBC. The latest numbers show a drop to 49.2 from 50.7 previously, with the new figure under the 50 mark which indicates economic expansion. Whilst the Chinese New Year at the start of the month is likely to have impacted these numbers, this is yet another disappointment continuing the theme of a slowing economic powerhouse.
Other macro events
- A coalition led by Saudi Arabia conducted air strikes against Houthi rebels in Yemen in support of the government. This latest bout of geopolitical tension in the Middle East caused a spike in the price of oil.
- Headline inflation in both the US and UK was zero in February. This was a slight improvement for the US which was -0.1% previously, but a fall for the UK from 0.3% in January. Core inflation remains solid for both, at 1.7% in the US (up from 1.6%) and 1.2% for the UK (down from 1.4%).
- UK retail sales slowed to 5.7% year-on-year in February from 5.9% in January, but remained well ahead of expectations of a slowdown of growth to 4.7%.
- Greece’s Alexis Tsipras met German Chancellor Angela Merkel in a bid to ease the political tension created between the two countries as a result of the fiscal policies sought by the anti-austerity Syriza party. Greece wants its sovereign debt to once again be viewed as eligible collateral for mainstream liquidity operations through the European Banking system. Earlier this year, the European Central Bank withdrew a waiver that made Greek bonds permissible, despite falling short on credit-rating criteria.
- Business confidence improved once again in Germany, increasing for a fifth straight month according to the IFO survery. The measure rose from 106.8 to 107.9, with the ‘expectations’ sub-index the biggest improver as companies become more positive on the economic outlook.
- Japanese manufacturing PMI (flash figures) slipped to 50.4 from 51.6 in February, and retail sales fell by 1.8% – only a marginal improvement from January’s -2.0% and worse than the expected -1.5%. Inflation also fell to 2.2% from 2.4% previously, whilst core inflation slipped by 0.2% to 2.0%.
Last week saw a drop across all major equity markets, weakening of the sterling and US dollar, and a spike in the price of oil on the back of air strikes in the Middle East.
Past performance is not a guide to future performance.
- Equities – All major equity regions were down over the week, led by UK and US equities, with the FTSE All-Share down 2.30% and the S&P 500 falling 2.25%. Positive economic data helped Europe limit its losses, but the FTSE Europe (ex UK) was still down 0.39%. Elsewhere, Japan (Topix) fell 1.79% and Emerging Markets were weaker with a return of -1.57%.
- Bonds – Major government debt was little changed on the week. UK 10 year gilts were 2 bps softer at 1.54%, whereas US 10 year treasuries and German 10 year bunds were both 3 bps wider at 1.96% and 0.21% respectively.
- Commodities - The action in Yemen caused the price of oil, especially Brent, to spike in the second half of the week. However, things had calmed down slightly by the end of Friday with Brent still up on the week at US$56.41 per barrel. Copper was little changed at US$2.77 whilst gold was stronger, breaking the US$1,200 mark briefly before ending Friday at US$1,198.30 per ounce.
- Currencies – The sterling weakened through the week, finishing down 1.05% against the Japanese yen but only 0.39% against the US dollar. The dollar itself was also generally weakening, down 0.55% against the Euro. Conversely, the yen made ground against the major developed currencies.
The week ahead
We begin the week with UK figures for mortgage approvals and consumer credit, which we expect to show continued strength. These are followed by Eurozone economic and industrial sentiment indicators, as well as the overall business confidence measure. These are followed on Tuesday by German retail sales, which are expected to have slowed from 5.3% year-on-year in January to 3.7% year-on-year in February. Here in the UK we also have the final GDP reading of the fourth quarter, before flash inflation readings and employment numbers for the Eurozone.
Midweek will see the overnight release of data out of Asia, including Japanese Tankan Large Manufacturing and Non-Manufacturing business confidence surveys. We also have the official Chinese PMI numbers, which will no doubt contrast to last week’s HSBC figures. In the UK we get the latest Manufacturing PMI, then in the US we have more employment data and Manufacturing PMI from Markit and ISM.
After a relatively quiet Thursday we finish the week with US non-farm payroll numbers, which we expect to have slowed slightly to 244,000 new jobs from 295,000 last month. We can also expect HSBC to release their China Services PMI.