12,6, 2016. Investment Weekly

Good Morning All Community;
we’ll see now the Macro Data and Key Events
for this week.
(5-10 Dec. 2016)
Marketreport

Headlines

  • Despite broadly positive macro data, most global equity indices dipped this week on soft investor risk appetite; however, energy and financial stocks gained amid higher oil prices
  • OPEC finalised a deal to cut output to 32.5 million barrels per day (bpd) from the current 33.64 million bpd
  • The US November employment report showed nonfarm payrolls rose 178,000, slightly weaker than the expected 180,000
  • In the coming week, the outcome of the Italian constitutional referendum will be in focus, along with the European Central Bank (ECB) policy meeting.
US
In the coming week, November’s ISM Non-Manufacturing Index is expected to tick marginally higher (55.2 from 54.8). While October saw broad slowing, business activity (57.7 versus 60.3) and new orders (57.7 versus 60.0) remained strong; however, employment (53.1 against 57.2 prior) was less encouraging. Since this release comes after the November employment report, this subcomponent will receive less attention than usual.
December’s preliminary release of the University of Michigan Index of Consumer Sentiment is expected to increase slightly versus November, rising by 0.3 points to 94.1. The market will look for confirmation of the pickup seen in the Conference Board’s consumer confidence release, which moved to a post-crisis high. The post-election rise in sentiment has likely been supported by the improvement seen in US stock markets and a further tightening of the labour market. Crucially, the series remains similar to levels seen during 2003-2006 and consistent with firm consumer spending.
Europe
In Europe, the highlight of the calendar is the December ECB policy meeting. At the last meeting in October, the bank kept policy on hold, and at the press conference, ECB President Mario Draghi confirmed the Governing Council “didn’t discuss tapering or the intended horizon…of our asset purchase programme,” emphasising that the December meeting would “define the monetary policy environment.” Crucially, Draghi also confirmed an “abrupt ending to bond purchases” is unlikely, alleviating recent speculation that the programme wouldn’t be extended. Given that headline inflation remains well below target (0.6% yoy in November), an extension of the programme is likely (by at least three months), with the recent increase in European bond yields implying that only slight tweaks to the parameters of the programme will be required. However, no move is anticipated in policy rates. New staff forecasts for growth and inflation will also be released, including projections for 2019 for the first time, and which could be used to provide fresh forward guidance on the future of the Asset Purchase Programme.
The final estimate of eurozone Q3 GDP is expected to be confirmed at 0.3% qoq. This release also provides a breakdown of components, which should show that household consumption continues to do the heavy lifting in supporting growth in the region amid an improving labour market and subdued inflation.
Following a surprising 1.8% mom dip in September German industrial production, expectations are for the October print to recover some ground (+0.8% mom) amid the recent pickup in German manufacturing PMIs. This would leave the annual growth rate at 1.5% yoy, well above the current 12-month moving average rate of 0.6%.
Emerging markets
China’s export growth (in US dollar terms) probably edged up to -5.0% yoy in November from -7.5% in October, as hinted by the rise in the PMI new export orders sub-index and reflecting a marginal improvement in external demand (amid solid US and eurozone manufacturing PMI readings). Export prices may have also recovered further. Meanwhile, imports likely fell 1.8% yoy after a 1.4% decline in October, helped by higher import prices and broadly stable investment and industrial output growth. As a result, the trade balance would have narrowed to USD46.7 billion in November from USD49.1 billion in October. PPI inflation likely accelerated further to 2.2% yoy in November from 1.2% in October, as indicated by the PMI input price sub-index and high-frequency commodity prices (e.g., iron ore, steel, copper and coal). CPI inflation is also expected to have edged up to 2.2% from 2.1% in October, on higher food prices.
November’s Brazilian IPCA inflation is expected to drop to 7.1% yoy from 7.9% in October. This represents a stark decline from the 10.7% peak seen in January 2016. The most recent release of the central bank minutes point to an expectation that inflation will continue to decline, to below 5% by the end of 2017 and towards mid-target (4.5%) by 2018. This would provide the bank with further room for cuts in policy rates.
November’s Mexican CPI is expected to rise to 3.3% yoy, ticking higher for the fifth straight month. Despite comparatively little evidence of pass-through from the weaker peso, this is the second straight month that that CPI inflation has been above the central bank’s 3% target. In mid-November, Banxico raised interest rates by 50bps to 5.25% as expected, with the stated aim of halting inflationary pressures that are likely to accelerate through 2017, as well as maintaining stable inflation expectations. While the Monetary Policy Committee is generally comfortable with the inflation outlook, the balance of risks remains to the upside, coinciding with greater downside risks to growth prospects.
The Reserve Bank of India (RBI) is expected to cut its policy repo rate by 25bps to 6.0% at its 7 December policy meeting, as inflation has decelerated (and has been lower than RBI forecasts). The deteriorating short-term economic outlook and disinflationary impulse from the demonetarisation programme (due to a temporary shortage of cash and disruptions to economic activity) increase the chance of further monetary easing in the near term. The RBI is also expected to lower its GVA growth projection for FY17 (7.6% currently) while keeping its baseline CPI inflation projection of 5.0% by March 2017. While the need for immediate rate cuts is reduced by the significant loosening of liquidity conditions, decline in domestic interest rates as well as recent rupee weakness (versus the US dollar), the RBI has indicated that the surge in deposits and interbank liquidity is only a temporary phenomenon.
In Turkey, CPI inflation is expected to have risen by 0.9% mom in November, which would bring annual inflation to 7.4% from 7.2% registered in October. However, recent lira depreciation and special consumption tax hikes on tobacco products are more likely to be seen in the December inflation numbers, which could see inflation end the year above 8% yoy. This may put pressure on the Central Bank of Turkey to increase interest rates further (following last week’s surprise hike).
South African Q3 GDP is anticipated to edge down to 0.4% qoq annualised, from 3.3% in the previous quarter, on the back of contraction in the manufacturing sector and a slowdown in consumer spending, offsetting an improvement in the mining sector.
Regards.
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