There was meaningful activity from every corner of the globe last week. It all translated into markets gains for the week, but not without concerns…
In the US we saw modest growth as the GOP released the proposed tax reform that they intend to pass before Thanksgiving. More impactful was corporate earnings for Apple which drove the Nasdaq up strongly on Friday. In addition to stocks rising, bonds did as well, as markets reacted favorably to the nomination of Powell as the next Federal Reserve Board (FRB) chair. It is widely believed that he will maintain a similar rate increase pace as Chair Yellen. It is also believed that he will likely loosen compliance constraints put into place post the financial crisis.
Equities in the UK responded favorable (ironically) to an increase in interest rates in the UK. Most likely in response to the weakening of the £, which makes British companies more competitive internationally. The weakening of the currency should also continue to cause issues for the UK’s inflation rate.
China manufacturing threw up a red flag in analysis of economic conditions. Caixin Manufacturing came in at 51, just north of the threshold (50) separating contraction from expansion. Now that we have gotten past China’s official political process, we are now seeing an erosion of economic indicators. We may now begin to see the slowdown in GDP growth that we have been expecting for 2 years.
With the re-election of Abe a new spending plan of $17B to aide with the aging population issues that Japan faces. Abe’s re-election also means the continuation of the stimulus that is currently in place.
The week was fraught with news. Much of the data brought strong positive market performance, but the concerns of a slowing China, inflation firming in the UK, firming oil prices, and all-time equity highs in the US could bring long term stress to the current positive landscape.
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