Weekly Market Update for 19th September

September 21, 2016 Market Update


Index     Week   Ytd
Value   CR TR   CR TR
FTSE 100 6710 -0.98% -0.98% 7.50% 11.00%
S&P 500 USD 2139 0.53% 0.59% 4.66% 6.34%
NASDAQ COMP USD 5245 2.31% 2.34% 4.74% 5.71%
EURO STOXX 50 EUR 2935 -3.86% -3.86% -10.17% -7.85%
NIKKEI 225 YEN 16519 -2.63% -2.63% -13.21% -12.27%
HANG SENG CNY 23336 -3.17% -3.12% 6.49% 10.19%
MSCI EMERGING MKTS USD 885 -2.63% -2.59% 11.50% 13.65%
FTSE WMA Income 2887 -0.37% -0.35% 8.26% 11.01%
FTSE WMA Balanced 3847 -0.26% -0.23% 8.95% 11.65%
FTSE WMA Growth 4450 -0.22% -0.20% 9.41% 12.19%
GOLD USD 1310 -1.32% 23.49%
WTI USD 43 -6.21% 16.17%

Notable events over the last week 

US Core CPI Remains Strong

Headline CPI printed at +0.2% (vs. +0.1% expected) month-on-month (MoM) in August pushing the year-on-year (YoY) rate up to +1.1%. Core CPI, which strips out volatile price movements in fuels and food costs, also came in above expectations at +0.3% (vs. +0.1% expected) lifting the annual rate to +2.3% from +2.2% previously. The reading was largely driven by a +0.9% MoM surge in medical costs, drawing large political criticism, and a +0.5% jump in auto insurance. This marks the 10th consecutive month of above +2% core inflation providing support for the more hawkish Federal Reserve members. However hawkish rhetoric has begun to lose momentum in recent weeks, as a result of soft economic data and a spike in market volatility. Markets are currently only pricing in a 20% chance of the Fed rising interest rates this week.

US Retail Sales Falter

US retail sales fell 0.3% (vs. -0.1% expected) in August however July’s figure was revised up marginally to 0.1%. Retail sales excluding autos also fell but only by 0.1% although expectations had been for a +0.2% gain. Overall, disappointing US August retail sales point to a slowdown in consumer spending following strong growth earlier this year. As consumer spending has been the primary driver of growth so far this year, the news is likely to further reduce the possibility of an US rate rise later this week.

UK Retail Spending Remains Strong despite Brexit

British retail sales softened only slightly in August, declining just 0.2% (vs. -0.4% expected) for the period, leaving the annual rate at 6.2%. Some pull-back was to be expected given the July’s strong numbers which were revised up from 1.4% to 1.9%. The stronger than expected sales is another example of the resilience the UK economy has shown so far post-Brexit.

UK Consumer Price Inflation and the Bank of England Hold Steady for Now

The headline rate of consumer price inflation held steady in August at +0.6% (vs. +0.7% expected). Core inflation was also steady at +1.3% in the year to August. Sterling fell following the release, with some market participants speculating that weaker than anticipated consumer price inflation gave the Bank of England room to loosen policy further if necessary to stimulate growth. On Thursday, the Bank of England voted unanimously to leave policy on hold. However, whilst recognising that recent economic data has been slightly to the upside of their expectations, the Monetary Policy Committee noted that if their outlook remains unchanged, ‘a majority of members expect to support a further cut in the Bank rate during the course of the year’.

UK Jobs Market Shows Continued Resilience

In the UK, the unemployment rate stayed at the 11-year low of 4.9% in the three months through July as the economy continued to add jobs. Employment growth also rose, adding 174,000 jobs in the three months to July up from 172,000 in June (vs. 171,000 expected), pushing the employment rate to the joint highest since records began in 1971, at 74.5%. Despite this, the Bank of England expects unemployment to rise gradually, reaching 5.6% by mid-2018, while the latest employment surveys have begun to suggest a weakening of labour market may lie ahead.

Coming up this week (Source Bloomberg)  

Day Data Release Consensus Prior
Tuesday United States Housing Starts Aug 1190k 1211k
Wednesday United States FOMC Rate Decision (Upper Bound) Sep 0.50% 0.50%
  United States MBA Mortgage Applications Sep 4.20%
Thursday United States Initial Jobless Claims Sep 261k 260k
  United States Existing Home Sales Aug 5.45m 5.39m
  United States Leading Index Aug 0.00% 0.40%
  Eurozone Consumer Confidence Sep A -8.2 -8.5
Friday Japan Nikkei Japan PMI Mfg Sep P 49.5
  Eurozone Markit Eurozone Manufacturing PMI Sep P 51.5 51.7
  United States Markit US Manufacturing PMI Sep P 52.0 52.0
  Japan All Industry Activity Index MoM Jul 0.20% 1.00%