Although quite volatile again, the S&P 500 ended last week unchanged from the week before at 2767, US 10-year Treasury yields closed the week at 3.19% (+3bps) and Italian 10-year bonds were slightly stronger by week-end but only after yields touched fresh highs of 3.8% earlier on Friday. The FOMC minutes showed some small changes in terms of overall stance. From a more hawkish tone a wording change from “accommodative” to “restrictive” and speaking of the possibility of raising interest rates above the anticipated “normalization” rate pushed-up average estimates for where the upper bound might be for short-medium-term interest rates. But these comments were tempered with remarks that any rate-hike path is still expected to be “gradual” (which appeared in the text 8 times), stating “members expected that further gradual increases in the target range for the federal funds rate would be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term.” Also, with Empire Manufacturing and retail sales up on the month the US dollar strengthened. The DXY Index was up 0.5% to 95.7 on the week. Although numerous corporate earnings were better than expected they were overshadowed by geopolitical concerns.
A Brexit deal seems to be either 95% done or 0% done according to differing politicians. According to the FX markets, showing sterling enduring sharp declines once every few days for the past fortnight, money doesn’t seem to believe the first of these accounts of how the negotiations are going. In Europe it became increasingly clear for those obstinate investors in Italy that the EU will reject Rome’s draft budget. The earlier (perhaps technical) bounce in European equities had tapered off by the end of the week. Over in China Q3 GDP and September industrial production slowed as domestic demand waned but retail sales and fixed asset investment improved.
Also last week, the US Department of the Treasury issued its semi-annual report to Congress on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States. In the latest report, the US Treasury named China, Japan, Korea, India, Germany and Switzerland as trading partners whose currency practices require monitoring but refrained from naming any major trading partner as a currency manipulator. The Treasury found that no major trading partner met all 3 of their criteria. Unsurprisingly, despite it only meeting one of the criteria (a significant bilateral trade surplus) the spotlight remained on China. The report noted it ‘constitutes a disproportionate share of the overall U.S. trade deficit’ and ‘As a further measure, this Administration will add and retain on the Monitoring List any major trading partner that accounts for a large and disproportionate share of the overall U.S. trade deficit even if that economy has not met two of the three criteria from the 2015 Act.’
On Monday we have the Chicago Fed National Activity Index; Eurozone PMIs are published on Wednesday; on Thursday we have German IFO, the ECB announce their rate decision and we’ll see if falling US home sales continue for a ninth month (also a number of major corporate earnings releases); on Friday we will see early figures for US Q3 GDP to close out the week.