Markets renewed their selling trend last week. Are we out of the woods, or is there more selling to come?
US
Regardless of economic data, the markets seemed hell bent to retest the lows of the current correction. Several pieces of decent US economic data made that clear.
GDP for the 2nd quarter was revised up to an annualized 3.9%. This was up from 3.7% and originally was estimated to be 2.3%[1]. This pace of growth requires the 2nd half of the year to maintain a 2% pace to keep up with the current expansion. This level should be easily attainable given spending during the 3rd quarter and the anticipated strength of 4th quarter spending.
Housing was mixed last week. Existing Home Sales were down 4.8% while new home sales were up 5.7%. When you drill this down to an actual number of homes it appears more dire. While new homes are a good indication of jobs growth, existing homes are a good indication of demand. Existing home sales were down 200,000 and new home sales were up 30,000[2]. Sheer size of their respective markets make the percentage change less meaningful.
Manufacturing data stayed stable in September. Coming in at 53.0, the same as August, this was disappointing as it was expected to expand. Capital goods orders also shrank in August after expanding in June and July. This indicator is watched as a sign of corporate spending plans. It fell 0.2% after expanding 1.5% and 2.1% in the prior two months[3].
Eurozone
France manufacturing was up unexpectedly to 50.4 in September from 48.3 in August. This is a great stride forward for what has been a dark spot on an improving Eurozone. That being said… Moody’s downgraded French debt to Aa2 as a result of their unwillingness to decrease entitlements to get their lack luster growth in line with their spending[4].
Germany showed signs of current month weakness, while showing forward looking strength; a great sign of optimism. German current assessment slipped to 114.0 in September from 114.8, while German business expectations grew from 102.2 to 103.3 in September.
China
Caixin Manufacturing PMI came in lower, at 47.0 in September, down from 47.3 in August[5]. That information was taken in stride last week as attention has moved away from concerns around China and towards the expectations about when the Federal Reserve will launch interest rates off the zero bound.
Japan
Core CPI (which includes fuel but not food) was down in August for the first time since April 2013. That is when Japan increased sales taxes to artificially prop up inflation. That has staved off inflation concerns to this point, however true inflation is born through demand, not through increased taxes that dampen demand. Look for more stimulus out of Japan as they continue to fight deflation.
For more information:
If you would like to receive this weekly article and other timely information follow us, here.
Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment.
Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.
[1] www.troweprice.com – weekly market wrap-ups
[2] www.investing.com – economic calendar
[3] www.mfs.com – week in review
[4] www.mfs.com – week in review
[5] www.investing.com – economic calendar