Synopsis of the week
- Strong US employment figures and wage growth increase the chances of the FED imposing higher interest rates.
- Emerging market central banks continue to feel the pressure of rising inflation and rising rates for US Dollar denominated short-term debt, seeing many currencies struggle.
- Worries that an increase in regulatory oversight for technology stocks have knocked the NASDAQ, coupled with the exposure to Emerging market ETFs.
On Wednesday evening, Alastair McCaig, our Head of Investment Management joined Bloomberg anchor Jonathan Ferro and Richard Jones, FX & Rates Strategist. In this week’s show, they discussed how emerging markets were struggling to cope with the rising US interest rate. They also discussed the sliding deadline for Brexit negotiations and looked ahead to the US Non-Farm payroll release.
Red was the predominant colour on traders’ screens last week as equity markets around the globe suffered from investors’ “risk off” mentality. On top of the usual geopolitical worries, the strength of the US employment scene and the knock-on consequences have sent market tumbling. The data that came out of the US on Friday saw unemployment levels remaining at 50 year lows and average earnings continuing to grow. For an economy whose GDP is 70% dominated by consumer spending, this is obviously good news. This sustained period of strong employment and increased income has seen the US FED increase interest rates in a effort to keep inflation under control. Equity markets took last Friday’s news as a bad sign rather than a positive and we might have reached a tipping point. Each new positive piece of economic data will only encourage the FED to tighten its monetary control and increase interest rates, not something that has historically helped equities.
On Thursday this week, we will hear from both the Bank of England and the European Central Bank. Unlike their emerging market counterparts, neither of these look likely to change rates or their guidance. Currently, FX markets are factoring in a rate rise by the ECB at the end of 2019 (meaning the Swiss National Bank are unlikely to raise rates until 2020 at the earliest). The BOE, on the other hand, have stated they aim to raise rates again within the next 12 months. Considering the problems the UK government have with Brexit negotiations, this looks quite optimistic.
Technology companies have been some of the strongest drivers helping move the NASDAQ and S&P 500 higher but some of the optimism for them is beginning to disappear. Last week saw the CEO’s of Twitter and Facebook sit in front of a panel of US lawmakers to answer questions about social medias inability to control “fake news” and how that might have affected the US elections. With both the public and politicians disgruntled by the lack of action to tackle these problems, increased regulation looks the most likely outcome from these hearings.
|Corporate Data Releases||Cie Financiere Richemont, Associated British Foods||Cairn Energy, JD Sports, Ashtead Group||Galliford Try, Dunelm Group||Morrison WM Supermarket, Adobe Systems||
JD Wetherspoon, Investec
|Economic Data Releases||Chinese Inflation Data, UK GDP & Trade Balance, US Consumer Credit||Chinese New Loans, UK Unemployment Rate, German ZEW Confidence||US Inflation Data, Crude Oil Inventories & FED Beige Book||UK Interest Rate Decision, EU & US Inflation Data, US FED Budget Balance||
Chinese Retail Sales & Unemployment Rate, US Retail Sales