The focus has moved away from Greece, at least in the short term, to be replaced once again by interest rate speculation. This week the Bank of England appeared to dampen down expectations to any changes in interest rates policy in the near future. This was despite one member of the rate setting committee, voting in favor of such a move. John Aurther’s, writing in the Financial Times on Saturday, highlighted the dilemma facing the Federal Reserve as Friday’s US employment and hourly earnings data provided those in favor and those against a move, food for thought. As Mr. Aurther’s concluded in his piece even if rates do rise in September, the first move will be modest and the gap before the next move is likely to be wide.
Equity markets in Europe and the US did not move in tandem in the past week, as US equities logged a 7-day losing streak, the S&P 500 giving back just over 1% on the week. However the recent slide in the share price of Apple arrested itself towards the end of the week. In contrast European and UK equities eked out small gains over the past 5 days. The divergence of performance between European equity markets and US ones has been notable over the past few years. As capital flows this year have favored European equities, 2015 has seen a reversal in this trend as the dollar has gained strength.
The weekly fund flow data, as is likely at this time of the year, offered little in the way of investor insights. Equity funds saw modest outflows and bonds modest inflows. The earnings season is coming to a close with approximately three quarters of the companies in Europe and the US having reported earnings. Encouragingly overall corporate earnings have met expectations. In the Euro Area, 69% of the Euro Stoxx companies beat EPS estimates, surprising positively by 11%.
Looking to the week ahead the focus in Europe will be at the back end of the week as July’s euro area inflation and GDP estimates are released. Forecasts are for a modest pick-up in the year on year inflation rate. After “Super Thursday”, Wednesday will be the focus for the UK as the latest employment rate and average earnings data are released. Economists are forecasting a modest fall in the unemployment rate from 5.6% to 5.5%.
China continues to be in focus, on Wednesday the latest Chinese Industrial production data is released. The forecast is for a dip to 6.6% from 6.8% in the previous month. We also get the latest import export data for the region, experts are expecting a modest decline in exports year on year in July. They are also anticipating a drop in imports of around 8% in the month of July.