An uneventful week for capital markets, as the FTSE 100 did manage to hold above 7000. The most notable move was in the US treasury market as yields on ten year US treasuries fell, however 2 year yields rose modestly. This move led a to a small flattening in the US yield curve. The US dollar continued its climb against its basket of other currencies, sterling however managed to hold its own over the week. The Vix index, or fear index as some like to describe it fell sharply on the week, back to just over 13, starting the week close to 17. Estimates for third quarter Chinese GDP coming in line with expectations at 6.7%, possibly also helped reassure equity investors.
The Federal Reserve’s current assessment of the US economy, documented in the release this week of the Fed’s Beige book assessed that the labour market remains tight, there are signs of wage growth, however economic growth is moderate. This assessment will make the Federal Reserve’s job no easier when it comes to what to do with interest rates, come December’s meeting.
The major corporate news of the week, came at the end of the week as ATT announced the proposed acquisition of Time Warner for $85bn. To be paid for half in stock and half in cash. There has been some comment in the Wall Street Journal that Apple looked at a merger with Time Warner back in the summer, however the talks came to nothing. With Apple’s potential fire power, investors may speculate they could come back into the frame.
Equity markets may be encouraged by the start of the earnings season. Factset market research recorded that with 23% of the S&P 500 having reported, more companies are reporting sales and earnings above estimates compared to their Five-year averages. So far earnings have been weighted towards financials. The energy sector has been a drag on overall earnings growth, this week Chevron and Exxon report, as the oil price has stabalised so perhaps the earnings of the sector.
Looking to the week ahead, aside from earnings, there will be plenty more economic data for the Federal Reserve to ponder over. This includes consumer confidence, the latest flash estimates from Markit for its October Purchasing Managers Surveys. New home sales and durable goods orders will also attract attention. At the end of the week we also get the latest estimate for third quarter growth of the largest economy in the world. There will also be several speeches during the week from Federal Reserve members, investors will look for any hints as to where current interest rate sentiment lies.
It is quite a busy week for UK economic data this week. Later on Monday the latest CBI Industrial Trends Orders. Forecasts are for a fall. And some analysts may look to this report as a better indication of the Brexit impact. On Tuesday Mark Carney testifies to the House of Lords on his views on the impact of Brexit on the UK economy. On Thursday, the preliminary estimate for Q3 GDP for the UK economy is released. Estimates are for year on year growth to come in at 1.9%.