Equity markets started the first week of November on a nervous note; gaining confidence as the week rolled on. The Vix fell again, closing just above 13, from a high earlier on the week of nearly 16. The first week of every month is dominated these days by the monthly ECB rate decision meeting, and the following press conference. This month was no exception, particularly after newspaper reports of some unrest as to chairman’s management style. In the end a robust performance by the chairman reassured equity investors.
The earnings season is coming to an end and with a few exceptions it appears to have passed without raising too many alarm bells. In Europe, two thirds of the companies have reported, and according to Merrill Lynch 56% have beaten expectations. However sell side analysts remain skeptical of the earnings outlook cutting their forecasts for both this year and the next. Taking a positive spin, whilst expectations remain muted it makes beating them that more achievable.
Sentiment towards equities has improved materially from a few weeks ago as 17.5 billion dollars flowed in to equity funds in the past week. This comes on top of the 20 billion dollars of inflows in the previous week. Money continues to chase the wining sectors buying tech and pharma and selling materials.
Friday’s jobs US report continued to show a fall in the headline rate, now down to 5.8% from 5.9% in the previous month. There are also some signs of wage pressures building as hourly earnings edged higher in October. Signs that wage inflation is starting to creep into the economy, although good news for the economy overall will also see those who want an earlier rise in interest rates resurface.
The focus on the week ahead from a UK perspective will be Wednesday’s latest unemployment rate, where expectations are for it to fall to 5.9%. Alongside this we get average earnings and the Bank of England’s latest inflation report. Average earnings for September are expected to rise modestly. The inflation report will be dissected to look for any change in commentary that may change interest rate expectations.
Looking to other areas of the globe, on Monday we get the latest Chines inflation data, and on Thursday industrial production. Hopes have increased that the Bank of China may be looking to lower the Reserve ratio for banks this data may reinforce or push back those hopes.
For Europe on Friday we get the latest euro area inflation data, where expectations are for a small pick up over last month. We also get the latest flash GDP growth rate reports for Q3. Analyst’s forecasts are for the year on year rate to come in at 0.74%, slightly below the previous 0.8%.