Weekly Digest – INVESTEC

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Markets have started the week on a broadly positive note after a number of news items from the US last week caused some shorter-term clouds to dissipate. The monthly payroll data announced on Friday came in significantly ahead of expectations, with the US economy adding 128,000 jobs in October compared to consensus estimates of 85,000. On the trade front, US Commerce Secretary Wilbur Ross suggested that the ‘phase one’ trade deal between the US and China could be signed this month and that discussions with European auto companies signalled a good chance that the threatened US tariffs on European car imports might not need to be implemented. The combination of these releases saw US equity markets move further into new all-time high ground and the US 10-year government bond touched the 1.75% mark.  That tone enabled all major equity markets, with the exception of the UK, to end the week in positive territory; even gold, which recently has appeared more correlated with risk-off insurance trading patterns, rose back above the $1500 level.

The US Federal Reserve cut interest rates again last week, for the third time this year. Following the positive US jobs data and the Q3 GDP report on Wednesday, where the outcome was again much stronger than most economists had forecast, it seems that investors have reassessed their expectations for the near term path of US interest rates. At the start of the week, the probability of a further rate cut in December was 32% and this had fallen to a mere 11% by Friday evening. Perhaps surprisingly, there was little evidence of any dollar strength after that change of view, with the pound holding above the $1.29 level that it reached on Thursday.

Turning to this week, the focus today has been on Europe with a raft of manufacturing data released and Christine Lagarde due to give her first speech as President of the European Central Bank in Berlin this evening. Investors will be watching carefully for any hints that she is seeking an easing to European fiscal policy. Markets are not expecting any changes to UK interest rates following Thursday’s meeting of the Bank of England’s Monetary Policy Committee, though the focus at the press conference is likely to be on its updated quarterly inflation outlook. Thursday also sees the Office for Budget Responsibility’s update to its public finance forecasts; these would conventionally have been used to accompany an Autumn Statement, but this year the latter has of course been deferred by the calling of the General Election.

The corporate results season continues this week, with Associated British Foods, Marks & Spencer’s, Sainsbury’s and Walt Disney among the highlights.