The Weekly Update

Last Thursday marked Trump’s first year in office, as the Independent put it he has made “2,470 tweets and 0 major legislative achievements”. According to 73.9% of 929 economic experts surveyed across 120 countries, Donald Trump is “negatively influencing the world economy”; 57.6% think the Trump-administration is hurting the US economy. As we get closer to the end of the calendar year, markets appear to be running out of patience with the lack of fiscal reform promised over a year ago, during Trump’s campaign. Also on Thursday, the US Senate published its tax reform bill which differed from the proposed House Bill; one example could be Senate’s proposal to delay the drop in corporate tax (to 20%) for a year (i.e. into 2019) versus the House’s call for a cut by January 2018. Expectations are for this to remain a contentious area with many market players expecting further delays in implementation as the two attempt to bring their proposals more acceptably in-line. The House’s proposal will be voted on this week, while the Senate Finance Committee brushes up on its own version; expected to be voted on before Thanksgiving. US Treasuries indiscriminately sold-off last week with the yield on the 10-year up 7bps to 2.399% and the dollar fell 0.58%, measured by the DXY Index.

A relatively quiet data week saw a surge in consumer credit in September; US credit-card debt exceeded USD1tn. This week kicks-off with the monthly budget estimate later today. PPI and CPI readings follow on Tuesday and Wednesday, respectively, market calls are for headline CPI to moderate to 2% yoy, with the core reading for October at 1.7% mom. The Empire manufacturing reading on Wednesday could grab market focus as expectations are for a dip. Retail sales readings follow, expected to be softer in October (following the post-hurricane surge in purchases). Thursday will see the import and export price Index prints, also expected to be softer for October. Housing starts and building permit data for October could be of interest on Friday, after the weak September readings.

Elsewhere, China’s reserves remained robust in October, in a statement following the release the State Administration of Foreign Exchange (SAFE) said it expects ongoing reserve stability as confidence in the country’s long-term economic development increases, coupled with a firmer foundation for balanced cross-border capital flow and international payments. October’s trade data (USD) remained robust as exports were held up by strong global demand, while a bounce in imports continues to underline strong domestic demand. Inflation readings remained steady in October, price pressures are expected to remain strong going forward, as economic growth remains robust, the labour market remains tight and the anti-pollution drive holds up commodity prices; currently, we see no need for the PBoC to change policy direction. Tomorrow will see China's retail sales, fixed assets and industrial production releases for October, this week we will also get the FDI reading for October.

In a bid to further liberalise China’s financial sector, on Friday Vice Finance minister Zhu announced plans to ease restrictions on foreign investment into China; foreign firms could potentially own controlling stakes (up to 51% - from 49% - after 3 years, with no limit after 5 years) in joint venture firms within the financial sector. This development will be worth monitoring as the world's second-largest economy strives to ease barriers across its financial markets, having already made big moves in opening up its equity and bond markets to foreign players.

On Friday S&P announced it had cut its rating for Oman by one notch to BB. Moody's and Fitch still have the country rated Baa2/BBB. The sovereign bonds remain attractive, we calculate the: 5.375% 2027s are currently trading 3.3 notches cheap with expected return and yield of 15%, while the 6.5% 2047s are 3.7 notches cheap with a 32% expected return and yield. Moody’s is to review Saudi Arabia’s A1 rating this Friday; no change to the rating is expected.

This week will see final readings for October CPI in the UK and Germany tomorrow, followed by France and Eurozone on Wednesday and Thursday, respectively. Interestingly, the Retail Price Index (RPI) measure is expected to surge up to 4.1%yoy in October, the first time since December 2011. On Wednesday, Japan’s industrial production will be of interest as the previous month-on-month reading was surprisingly weak.  

Central bank chat could dominate this week, today we will hear from the Fed’s Harker, the ECB and Japan’s Kuroda. Trump and Tillerson are due at the US-ASEAN summit as their Asia trip comes to an end this week. Tuesday will be another exciting day as Fed Chair Yellen, the ECB’s Draghi, BOJ’s Kuroda and BoE’s Carney speak at an event hosted by the ECB panel. What could be of interest is any indication that Yellen could remain on the Board of Governors once she leaves her Chair position to Powell. Also on Tuesday, we will hear from the Fed’s Evans, Bullard and Bostic and ECB’s Coeure and de Galhau. Trump’s attendance at the East Asia Summit may garner some attention. Focus is expected to move the UK’s Brexit bill, on Tuesday and Wednesday, where we may see come give-up on the EUR 60bn leaving ‘fine’; the UK is officially expected to leave the EU at 2300 (GMT) on Mar 29, 2019; there is still a very long road of negotiations ahead, especially in term of trade deals. Wednesday will see a continuation of central bank chat, as the ECB’s Praet, Fed’s Evans, BoE’s Haldane, amongst others are due to speak.  We could also see the fifth round of NAFTA talks commence on Wednesday. UK retail sales readings for October could surprise to the downside on Thursday, while France’s unemployment reading may have tracked lower in Q3’17. The week will end with Draghi’s keynote address in Frankfurt, followed by the Fed’s Williams note.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.