With the Pacific G10 Macro Rates Team
Global Macro Overview
It has been a quiet week for markets, despite political volatility. Yields on the 10y US Bonds spent the week within an 8bps range. While the political situation in the UK remains unpredictable, positive headlines on US-China trade and carrot-and-stick speech from Vice President Pence on Thursday ignited equity markets with a dose of optimism, as the S&P 500 rallied 1.4% on a week.
US: Data has been mixed this week. Manufacturing sentiment from regional surveys and Markit has been strong, with Richmond Fed Index increasing to +8 from -9 and Markit PMI improving from 51.1 to 51.5. However, regional surveys and Markit PMI have been painting a more optimistic picture than the ISM survey in recent months. Consumer sentiment has deteriorated slightly, housing data continued to show strong market and jobless claims remain close to cycle lows. Durable goods orders for September indicated the further slowdown of capital expenditures.
Canada: Monday’s election resulted in a minority government with the Liberal party losing the majority in line with expectations. Retail Sales in August contracted -0.1% MoM vs. +0.4% forecasted expansion.
Data has been on the positive side this week. After weak business confidence numbers out of France on Wednesday, Markit PMIs came in strong on Thursday (50.5 from 50.1 Manufacturing and 52.9 from 51.1 Services), especially strong considering global manufacturing remains in a recession. Data out of Germany and Eurozone was less optimistic with Manufacturing at 41.9 (41.7 prev.) with Services at 48.6 (48.5 prev.) In Germany; manufacturing remained unchanged at 45.7 and Services at 51.8 (51.6 prev.)
Within the Eurozone the Ifo survey showed signs of stabilisation as expectations improved to 91.5 from 90.8, but weaker current conditions at 97.8 vs. 98.5.
The ECB meeting on Thursday was the last for Mario Draghi as President of the European Central Bank. His final press conference unfortunately lacked details and was focused on his legacy. ECB language remains pessimistic and many GC members continue to stress that fiscal policy should come forward and drive economic growth.
Sweden. Riksbank surprised markets on Thursday as they communicated an interest rate hike for the next meeting. After years of negative interest rates, a weak currency and above potential growth, Riksbank is eager to bring rates back to 0% even with slowing economy and weak external backdrop. To balance the hawkish message, the interest rate forecast was lowered further and now indicates 0% rates until mid-2021. Consumer confidence numbers were slightly stronger and retail sales still healthy at 2.6% YoY.
Norway. Norgesbank kept rates unchanged this week and left the statement unchanged. EUR/NOK fx rate rallied above 2008 highs.
No major data this week with a national holiday on Tuesday. Industrial activity index slowed to 0% in August from 0.2% in July and PMI data for October came in weaker across the board.
No data this week with politics driving the markets. The first vote on WAB was passed on Tuesday, however the timetable vote was not passed sending the process into limbo. Currently it is uncertain how long it will be until the extension is agreed by the EU.
No data from Australia. New Zealand had positive trade balance data, as export growth surprised to the upside.
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