Weekly Market Highlights

Volatility emerges as investors reassess the global growth outlook

  • U.S. 2Q GDP was revised higher to +4.6%
  • The European Central Bank is scheduled to convene on Thursday
  • The Institute for Supply Management indices and U.S. employment report headline this week’s domestic economic releases

Last Week’s Highlights

  • U.S. Existing Home Sales:  ‑1.8% to SAAR of 5.05 million units in August.
  • U.S. New Home Sales:  +18.0% to SAAR of 504,000 units in August.
  • U.S. Durable Goods Orders:  ‑18.2% in August (excluding transportation, durable goods orders increased 0.7%).
  • U.S. 2Q 2014 GDP (third estimate):  +4.6% annualized rate (revised higher from second estimate).
  • Oil:  $93.54 ($1.89)
  • Gold:  $1,215.40 ($1.20)
  • U.S. 10-year Treasury:  2.54% (0.05%)
  • Dollar:  Euro--$1.27, Yen--109.30 (strengthened against Euro and Yen)
  • VIX:  14.85 (2.74)

What to Watch for

  • Monday 9/29:  U.S. Personal Income and Outlays
  • Tuesday 9/30:  Euro Area CPI
  • Tuesday 9/30:  Case-Shiller Home Prices
  • Tuesday 9/30:  U.S. Consumer Confidence
  • Wednesday 10/1: ISM Manufacturing Index
  • Thursday 10/2:  European Central Bank Policy Meeting
  • Friday 10/3:  U.S. Trade Balance
  • Friday 10/3:  U.S. Employment Report
  • Friday 10/3:  ISM Non-Manufacturing Index

Global equity markets finished broadly lower and experienced heightened volatility last week. Overall, the S&P 500, MSCI EAFE and MSCI Emerging Markets indices posted losses of -1.3%, -2.2% and -2.8%, respectively last week. Continued economic malaise in Europe and ongoing concerns related to China’s growth trajectory were two sources of financial market volatility and unease. Europe, China and the global growth picture will likely remain top of mind for investors for the time being. On the macro front, European inflation, the Institute for Supply Management (ISM) indices and U.S. employment report will headline this week’s economic releases, which will hopefully give investors confidence in the direction of the economic cycle, which we believe is still to the upside–particularly for the United States.

ECB Convening

When the ECB meets on Thursday, they will have a lot on the docket to discuss. The euro area recovery remains frail, the region’s composite PMI continued to decline in September, inflation is precariously low and the ECB’s first targeted long-term refinancing operation came in well below consensus expectations. Altogether, this puts more pressure on ECB president Mario Draghi to enact stimulative measures and stand behind his “whatever it takes” philosophy. If possible, Draghi would like to avoid a full scale quantitative easing program that includes purchases of sovereign debt, but the probability of such a scenario has certainly increased in recent weeks.

China’s Trend Growth

Meanwhile, the HSBC China manufacturing numbers ticked up in September. Recent stimulus measures in the country should help but China’s growth continues to trend slower at approximately 7.5% GDP growth. China has been supported by an improvement in economic activity the past few months with PMI activity rebounding into positive territory. However, growth momentum has waned more recently as the country contends with falling property prices and rising credit concerns. Over the short term, investors are watching the degree of economic stimulus from the government, but over the longer term, gauging if reforms can support a transition to a more consumption-led economy. While it may take time to achieve, we believe the government’s economic blueprint that is less dependent on investment and credit expansion may lead to more sustainable growth over time.

Data Source: FactSet and RIMES

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