US Equities End Lower for a Second Week

Daily Analysis - 19/11/2017

Cautious Tone Sweeps Through Financial Markets

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Global markets saw a distinct dip in risk appetite as signs of opposition to the details of the much-touted US tax reform virtually pushed all major equity indices into the red.  A slew of weaker macroeconomic data points from China, especially a sharp pullback in lending, also reinforced fears of an imminent slowdown in economic activity.

 

Last Week


The US House of Representatives passed a tax plan on Thursday that slashed the top corporate rate all the way to 20.00%. However, remaining doubts weighed on investor sentiment amid disagreements between the House and the Senate. On the inflation front, both the core CPI and PPI numbers topped estimates, helping bolster the likelihood of a December rate hike. Retail sales grew 0.20% in October, while housing starts and permits both recorded unexpected gains. In earnings news, tech companies stood out, with Cisco returning to growth and pressing ahead with its subscription model transition. Elsewhere, Wal-Mart popped 10.00% after unveiling a 2.70% jump in like-for-like sales and a spike in online sales.

Across the globe in China, Beijing’s efforts to curb lending and control air pollution cooled the economy further in October. Three key monthly indicators — industrial production, retail sales and fixed asset investment — fell significantly from September, coming in below forecasts. European stocks started the week on a weak note but recovered on Thursday, buoyed by the Euro’s strength against the greenback following German GDP figures for the third quarter that topped projections. In the UK, investors remained unsettled about the stalemate in Brexit negotiations and the fragility of Prime Minister Theresa May’s leadership. Meanwhile, Brent crude experienced a spike in volatility after the IEA lowered its demand forecasts alongside Russia wavering on the need to extend production cuts.

 

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The Week Ahead


Market activity is likely to be muted in the upcoming week ahead of the Thanksgiving holiday on Thursday.  The US Federal Reserve will publish the minutes of its November 1st meeting during which the Central Bank decided to keep interest rates on hold. Investors are expected to look past any discussion on a December rate hike, which is broadly priced in, and instead search on clues about next year’s rate trajectory amidst a leadership change at the bank. Apart from Fed minutes, Friday’s Markit Flash PMI figures for November could draw more attention than usual in the absence of any rivalling macroeconomic data.

UK Chancellor of the Exchequer Philip Hammond will deliver the country’s Autumn budget on Wednesday. The official economic and fiscal projections made by the independent Office for Budget Responsibility are forecast to result in generally unfavourable updates since the last revision in March. Minutes of the Reserve Bank of Australia’s November 7th policy meeting are due on Tuesday. After a spate of recent data all signalling a subdued inflationary outlook in Australia, the minutes are unlikely to significantly change that outlook. The Aussie dollar slipped to a 5-month low last week and could struggle to find support from the minutes, unless Governor Philip Lowe surprises with less dovish remarks in a speech scheduled for the same day.

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