A quick review of the issues and events driving the markets this past week... and what's on tap for the week ahead.

Weekly Market Snapshot

August 18, 2014

"It is better to admit what is than to hope for what won't be."

— - French Finance Minister Michel Sapin, conceding that the country’s budget deficit would exceed its target level of 3.8%

The week in review...

Europe

Eurozone: Running out of petrol - The Eurozone economy was stagnant in the second quarter, dragged down by weakness in its biggest economies. German GDP (Gross Domestic Product) fell 0.2%; Italy returned to recession and France saw zero growth. The monetary union’s GDP was flat between April and June, heightening deflation fears, and raising hopes that the European Central Bank will unveil a US / Japan-style Quantitative Easing (QE) stimulus. Sovereign bonds rallied and the area’s overnight borrowing costs fell to a euro-era low. The benchmark 10-year German bund fell below 1% for the first time.

UK: Not so fast: In the much faster-growing UK, where QE measures have already been adopted, wages fell for the first time since 2009, even as unemployment fell to 6.4%. The Bank of England cut its forecast for 2014 wage growth by almost half, to 1.25%, and governor Mark Carney changed his previously rather-hawkish mantra, noting that falling wages could delay a rise in interest rates. Sterling fell 0.5% against the US dollar and 10-year gilt yields fell by 7.3 basis points to 2.416%.

United States

Retail sales: Two steps forward, one back: July retail sales were flat, compared with a 0.2% gain in June. Core sales – which exclude cars – were 0.1% higher. The weak data reinforced signs that growth, albeit steady, is still sluggish. The US yield curve continued to flatten, with 10-year Treasury yields trading below 2.4%.

Japan

Tax stumble: The economy shrank by 1.7% in the second quarter, the worst contraction since the 2011 tsunami, though better than the consensus estimate of 1.8%. The main culprit: a long-anticipated sales tax increase to 8% which led many consumers to shift spending into Q1 in advance of the increase. A second hike, to 10%, is planned for October 2015.

Emerging Markets

Slower growth: Moody’s revised GDP growth forecasts for emerging markets, citing inflation concerns and lower exports to China. Argentina and Russia are expected to contract, while Brazil and South Africa’s economies are likely to slow down. Growth in the 20 largest emerging countries, excluding China, may reach 2.1% this year. Emerging market stocks, however, gained last week as investors expect the Chinese government to bolster its economic stimulus, lifting demand for products sold by smaller emerging markets.

Commodities

Oil: West Texas Intermediate crude had one of its worst weeks since November, while Brent hovered near 12-month lows, amid reduced demand and rising tensions in the Middle East. Oil prices have remained flat over the past 12 months.

Signs of the times:

ECB would, for now, prefer to do nothing – Financial Times

Junk Sell-off Means Buy at Barclays to Citigroup: Credit Markets – Bloomberg

Exporters eyeing boost in Russian business – China Daily

Sources: Bloomberg, Wall Street Journal, Financial Times, Bloomberg

...The week ahead:

GLOBAL ECONOMIC CALENDAR: August 18–23

 

U.S.

Other Americas

Europe, UK, Africa, Mideast

Japan, Asia Ex Japan & Pac Rim

Mon
Aug 18

 

Canada: Foreign Direct Investment YoY

EU: trade balance
UK: Rightmove House Prices MoM

South Korea: PPI MoM

Tue
Aug 19

CPI MoM
Housing starts

 

 

 

Wed
Aug 20

 

Brazil: IBGE Brazil CPI Extended National MoM

EU: Construction output YoY

Japan: Trade balance; All Industry Activity Index

Thu
Aug 21

Initial Jobless Claims
Philadelphia Fed Business Outlook
Existing home sales
Federal Reserve Jackson Hole Symposium

 

EU: Consumer Confidence

 

Fri
Aug 22

Federal Reserve Jackson Hole Symposium

Brazil: Current account balance

 

 

Sat
Aug 23

Federal Reserve Jackson Hole Symposium

 

 

 


Definitions:

Gross Domestic Product (GDP) is an economic statistic which measures the market value of all final goods and services produced within a country in a given period of time.

Quantitative easing (QE) refers to a monetary policy implemented by a central bank in which it increases the excess reserves of the banking system through the direct purchase of debt securities.

The Federal Reserve (Fed) is the US central bank, responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

The European Union (EU) is an economic and political union established in 1993 after the ratification of the Maastricht Treaty by members of the European Community and since expanded to include numerous Central and Eastern European nations.

Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. These nations are sometimes also referred to as developing or less developed countries.

U.S. Treasuriesare direct debt obligations issued and backed by the "full faith and credit" of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasury securities, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

Consumer Price Index (CPI) measures the average change in consumer prices over time in a fixed market basket of goods and services.

The Producer Price Index (PPI) is an inflationary indicator published by the U.S. Bureau of Labor Statistics to evaluate wholesale price levels.


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Previous Editions

Click on a date to view that week's edition of weekly snapshot.

Poll

Which Asian country will have the strongest growth in the coming year?








Poll

Which Asian country will have the strongest growth in the coming year?

Japan, as Shinzo Abe's policy initiatives take hold
(19%)
India, as Narendra Modi's new government enacts changes
(35%)
China, as Xi Jinping's reforms promote a stronger financial sector
(24%)
South Korea, as President Park Geun-hye's plan to boost growth bears fruit
(22%)



Previous month Poll

Go for growth: Where will a global recovery be strongest this year?

Europe, as countries emerge from bailouts
(43%)
US, as consumers regain optimism
(40%)
Japan, as stimulus programs begin to bear fruit
(7%)
China, as reform and pro-growth policies continue
(10%)