Another decent week for developed equities, as they finished the week marginally higher than they started. The past 5 days gave plenty of talking points for analysts and economists to focus on. Wednesday’s autumn statement made headlines mainly by drawing attention once again to the budget deficit, and what measures can be taken to tackle it without implications for the economy overall. As we approach next year’s election this topic may well continue to draw more press headlines.
On Thursday Mario Draghi appeared in front of the worlds media post the monthly rate decision announcement. As we anticipated this meeting was one of the less interesting ones. The past month has seen the eurozone data showing some small signs of at least stabilizing, and for that reason it was unlikely that Mario Draghi’s stance would deviate much from the previous month. However later in the day there were some stories running in the press that the ECB may look to some form of QE in the New Year. More and more the modus operandi of the ECB appears to be to use the media to dangle carrots in the air hoping that this will be enough to underpin the market sentiment. One does have to wonder if there will come a point when their bluff gets called.
The economic boost on Friday came from the US jobs report showing another strong month of non-farm pay rolls. On top of this came the news that hourly earnings rose 0.4%, the most since November 2008. Bonds fell on the news, as rate rise expectations were brought forward. This move in the bond market did not impact equity investor sentiment, as investors appeared to ignore interest rate implications but focus more on the positives for economic growth. Equities and bonds have tended to move in tandem this year, it will be interesting to see if bond yields do continue to rise if equities will become impacted. We think a lot will depend, if yields do continue to rise, on the pace of that rise.
A Christmas approaches things start to slow down a little, but as always there is a continued drip-feeding of financial data from the US in the coming week. In the UK on Tuesday we get manufacturing and industrial production data, expectations are for a small dip from the previous month, but this should not worry markets unduly. In Europe it’s a pretty quiet week, on Monday we get some investor sentiment data, expectations are for no real pick up in sentiment. Greece may be in focus again on Monday as hopes that 2014 will see the end of Greek bailouts appear to be dented as Greece will be forced to ask for an extension of its EU rescue from the troika. For Asia the start of the week is the most important as we get Japans final Q3 GDP report, and from China the latest import export data.