Economic Data Review (Oct 14-18, 2019)
This week we’ve seen an intriguing combination of disappointing US data and a buoyant US stock market. At the time of writing the S&P 500 sits just 1% from its all-time high of 3027, awaiting the last trading session before the weekend.
Earnings start with a bang
The positive sentiment is undoubtedly related to a strong start in US earnings season. Even though it’s still early, the majority of S&P 500 companies that have reported so far have beaten market expectations, with select names from healthcare (United Health), consumer products (Johnson & Johnson) and finance (J.P. Morgan) leading the way.
Brexit deal boosts confidence
There’s also the influence of the Brexit relief rally, which has been a tailwind to western markets after the UK and EU finally agreed on a Brexit plan on Thursday. It’s by no means a done deal, Prime Minister Boris Johnson still has to get it voted in back home, but even the hint of an agreement in this bitter saga has buoyed markets.
European Stoxx 600 broke recent highs, rising 1.3% to 396 on the day. The DAX also broke recent highs on the news, surging beyond 12,800, but gave those gains back before market close. The Sterling continued its recent rally against the dollar, reaching as high as 1.29 on the day.
US Economic data still points to a slowdown
On the data front, as I mentioned above, it’s been disappointing. Both US retail sales reports fell short on Wednesday, the broader measure showed a drop of 0.3% while the core figures, which exclude automobiles and other big ticket items, dropped by 0.1%. This is the first drop in six and seven months, respectively.
The Philly Fed Manufacturing Index posted a substantial drop off, falling to 5.6 from last month’s reading of 12 and disappointing the market’s expectations of 7.3. This was echoed by industrial production figures that were down by 0.4%.
Crude oil inventories surged to 9.3 million barrels, up from 2.9 million last week. This reading was one of the largest mismatches in expectations. The market broadly expected a slight reduction to 2.7 million barrels and what it got was almost 3.5 times that. Some of this glut has been attributed to US sanctions on COSCO, a Chinese shipping company that fell foul of the US government.
Mixed European economic data
On Monday, EU data revealed an uptick in European manufacturing, which was up by 0.4%. Meanwhile German WPI, the price of goods sold by wholesalers, was shown to decline by 0.4%.
On Tuesday, both the German and Europe-wide ZEW economic surveys revealed very slight improvements in economic sentiment. This is despite both surveys having remained in negative territory since May and April, respectively. German economic sentiment rose from -22.5 to -22.8, whereas European economic sentiment rose from -22.4 to -23.5.
UK indicators also muted
Unemployment claims increased to 21.1 thousand from last month’s figure of 16.3 thousand, this was foreseen by the market, which expected a reading of 21.3k. The unemployment rate increased to 3.9%, up 0.1% from last month.
CPI readings were unchanged from last month at 1.7%, disappointing expectations by 0.1%. Meanwhile the UK House Price Index registered an increase to 1.3% from last month’s reading of 0.8% and analyst’s expectations of 0.9%
Retail sales remained unchanged at 0.0%, an improvement from last month’s 0.3% decline and the market’s expectations of a -0.1% reading.
What to keep an eye on
Today keep an eye out for the Coca-Cola earnings release before the opening bell. Coca-cola’s stock has risen 14% this year. Last time round the company beat estimates and gave positive forward guidance for this quarter.
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