Keine harte Landung Chinas?

Wrap up - last week

Glad tidings: US avoids default and Chinese growth accelerates

• The week saw the US government narrowly avert a default – at least temporarily, while better Chinese economic growth data also impacted positively on market sentiment. The S&P 500 ended the week at a record high of 1,744, up 2.4% on the week. Washington’s politicians struck an eleventh hour fiscal deal. The federal government will reopen until 15 January and the debt ceiling will be suspended until 7 February. Additionally, 13 December was set as the deadline for the completion of budget deficit reduction discussions. There are now expectations that the Federal Reserve (the Fed) will delay tapering its quantitative easing programme until later in the year or into 2014, which could provide near-term equities support. However, the same expectations led 10-year Treasury yields to fall (prices rose) to a two-month low of 2.58% and gold to close up almost 4% on the week. Credit rating agency Standard & Poor’s estimated that the more than two-week long government shutdown will have cut annualised fourth quarter US economic growth by 0.6%. Meanwhile, US consumer sentiment fell in October; the initial reading of the Thomson Reuters/University of Michigan gauge fell from 77.5 in September to 75.2.
• China’s economy expanded by 7.8% year-on-year (yoy) in Q3 on stronger exports and solid domestic demand, a sign that the economy may not be heading for a hard landing. The news boosted commodity prices including copper and Brent crude oil. But exports were unexpectedly weaker in September, falling 0.3% yoy, while annual inflation rose strongly to 3.1% largely owing to higher food costs.

• In the UK the number of unemployed fell by 18,000 in the June-August period, to 2.49 million. Retail sales rose by a better-than-expected 0.6% month-on-month in September, following a 0.8% fall a month ago. Political uncertainty in Germany lingered on with the German Green party’s withdrawal from coalition talks with Angela Merkel’s CDU (Christian Democratic Union).

Shaping the markets – this week

Playing catch up: crucial US data will finally be released

• The US will issue a backlog of data that were delayed by the federal government’s partial shutdown. Key among these will be the September non-farm payrolls report and the unemployment rate (Tuesday). There is a possibility that the federal government shutdown will have had an adverse effect on October’s job data. The latest monthly existing home sales data are published at the start of the week. In the US, durable goods order numbers are published in advance of the final reading for consumer confidence by the University of Michigan (Friday).

• The UK sees the initial estimate of gross domestic product (GDP) in the third quarter (Friday). Analysts are predicting growth of 1.0% as there have been strong improvements in recent business surveys. The data should influence the Bank of England’s decision on when to tighten monetary policy. In France, October business confidence data are released by INSEE (Wednesday). Meanwhile, the European Commission’s consumer sentiment indicators are published for the eurozone. On Friday, German business indicators are released by the IFO Institute.

• In Japan, international trade (Monday) and inflation figures are out (Friday). Recent data suggests that Japanese exports may be stronger, aided by the weak yen and increasing foreign demand. Chinese initial manufacturing data published by HSBC (Thursday) may confirm the sector and the economy is strengthening again. However, the housing market is still an ongoing concern; this is likely to be confirmed by the release of the 70-city new house prices index. The authorities may have to step in and implement further cooling measures in the housing sector, to the detriment of broader GDP growth.