Another decent week for equity markets, the FTSE 100 climbing back to the top end of its trading range, 7500. The S&P 500 continues to grind higher. It was an uneventful week for capital markets ahead of the third quarter earnings season. At one point in the week, the lack of volatility resulted in the Vix index hitting an all-time low. Friday’s US employment report has been largely dismissed by analysts due to apparent distortion from the recent hurricane season. The unemployment rate fell; however, the number of jobs also fell for the first time since 2010. Average hourly earnings rose to 2.9%, virtually guaranteeing another move by the Federal Reserve in December. Yields in the bond market rose, as would be expected post the higher wages report. The curve refuses to steepen as yields on the two year rose more than that of the ten year. Yields on the ten-year US treasury are coming back close to 2.4%, the top end of the range over the past couple of years aside from the spike we saw in the election of Donald Trump. Likewise, the dollar strengthened in further reaction to the expectation the Fed will act in December to the latest economic data.
The coming weeks will see the focus move away from interest rates towards third quarter earnings. The banks will kick off this week, namely JP Morgan, Citi, Bank of America and Wells Fargo get the ball rolling. According to Factset, a record number of companies have given a positive forward guidance for the third quarter. Equity investors will be keen to hear guidance for the coming year-end. The minutes from the last Fed meeting will be released on Wednesday but as usual, there is always a fair portion of macro data to come from the US economy. After last week’s Purchasing Manager data this week its more about inflation and the consumer, and the bulk comes towards the end of the week. On Thursday Septembers Produce Price Index, forecasts are for a small rise from 2.4 to 2.5%. On Friday the inflation rate for September as well as retail sales and the Michigan Consumer Sentiment survey. It will be in interesting to see if the recent rise in the oil price will have impacted consumer sentiment.
There is some data for the UK press to latch onto this week regarding the state of the UK economy. On Tuesday we get Industrial and Manufacturing data for August as well as year on year construction output. On Thursday Bank of England Monetary Policy Committee member Haldane speaks, it will be interesting to see if he comments on the speculation that the November rate rise would be wise for the UK economy. Moving further afield, on Friday China release their year on year import-export data. This piece of data can be considered to give a small indication of the strength or otherwise of the global economy.