Weekly Market Update
Notable events over the last week
- US retail sales ticked up 0.2% in November on the back of a 0.1% rise the previous month, just shy of the 0.3% gain predicted. Performance was largely dampened by weak auto sales (down 0.4% in November after a 0.3% drop in October) and cheap oil. US core retail sales (sales excluding automobiles, gasoline, building materials and food services) growth proved more compelling beating expectations by 0.1% growing by 0.5% over the same period. Cheap oil was also a drag on US import prices which fell 0.4% MoM in November and by 9.4% from a year earlier. The strong dollar and stagnating overseas growth also weighted on prices pushing them down for the fifth straight month.
- US consumer confidence picked up for the third straight month in December, rising to 91.8 from the final November reading of 91.3, yet missing expectations of 92. December marks a four-month high for the University of Michigan’s preliminary consumer sentiment index, with gains attributable to cheaper gasoline and brighter job prospects. This was further supported by the tick up in the October JOLTS job quits rate, a key measure of worker confidence. The index which counts the number of separations that are initiated by employees, increased to 2.8m from 2.7m in September. Hires also rose to 5.1m during the period, up from 5m the previous month.
- In Europe, Q3 GDP growth was confirmed at 0.3%, marginally below the 0.4% expansion seen in the second quarter. Investment remained flat after rising 0.1% in Q2. Meanwhile, exports only grew by 0.2% after gaining 1.6% in the last quarter. GDP climbed 1.6% in Q3, the same rate of growth as seen in Q2. The annual growth rate also matched economists’ expectations.
- In Asia, China’s growth has begun to show signs of stabilising after further supportive fiscal stimulus and accommodative monetary policy. The CPI gained 1.5% YoY in November, up from 1.3% YoY in October and surpassing expectations of a 1.4% increase. Retail sales rose 0.2% last month to an above market 11.2% YoY, beating expectations of 11.1% and setting a ten-month high in the process. Industrial production was up a robust 0.6% to 6.2% YoY (vs. 5.7% expected) and while fixed asset investment was unchanged at 10.2% YoY, it still came in above expectations of 10.1%.
- The high-yield bond market took a knock last week as two US HY funds announced plans to liquidate portfolios and return cash to investors. Liquidity is a major concern for markets as redemptions rise and 2016 forecasted default rates increase. However this may largely be an oil story with yields on sub-investment grade energy bonds up by 700bps since May, compared to the rest of the high-yield bond index where spreads have only raised by 200bps.
- Lastly, OPEC confirmed that they would not curb oil production and are likely to see greater output from Iraq and Iran once sanctions are removed next year. Such production is likely to continue to put pressure on the price of oil in the immediate future.
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