Welcome to this weekly market recap for the past week, where we break down the latest macroeconomic events and what they mean for the global economy and markets. In this weekly market recap, we’re diving into this week’s key data releases, from inflation to trade balances, and everything in between. Let’s get started!
Inflation Data
– Eurozone: The Consumer Price Index (CPI) for October remained unchanged at 2% YoY, with the Core CPI stable at 2.7%. This stability suggests the European Central Bank’s (ECB) monetary tightening is achieving a steady inflation level, aligning with the ECB’s target.
– UK: Inflation rose sharply, with CPI jumping to 2.3% YoY (previous: 1.7%; forecast: 2.2%). Core CPI also climbed to 3.3% (previous: 3.2%; forecast: 3.1%), signaling persistent underlying inflationary pressures. This could heighten the Bank of England’s (BoE) consideration for future rate hikes.
– Japan: Inflation showed a slight deceleration, with both headline and core CPI at 2.3% YoY (previous: 2.5% and 2.4%, respectively). However, core CPI surpassed forecasts (2.2%), reflecting continued price pressures, albeit less severe than prior months.
– Canada: Inflation rose to 2% YoY (previous: 1.6%; forecast: 1.9%), with core CPI edging up to 1.7% (previous: 1.6%). While the data aligns with the Bank of Canada’s expectations, it points to an uptick in inflation dynamics.
Trade Balance and Current Account
– Eurozone: A substantial improvement in trade balance, rising to €12.5B (previous: €4.1B; forecast: €7.9B), and a robust current account surplus of €37B (previous: €31.5B; forecast: €27B), reflects strong external demand and trade performance.
– Switzerland: The trade surplus more than doubled to CHF 8.06B (previous: CHF 4.94B; forecast: CHF 4.25B), driven by strong exports.
– Japan: The trade deficit widened to ¥461.2B (previous: ¥294.1B; forecast: ¥360.4B). Weak exports and elevated import costs are contributing to Japan’s trade challenges.
Retail Sales and Consumer Confidence
– UK: Retail sales declined to 2.4% YoY (previous: 3.2%; forecast: 3.4%), highlighting weakening consumer spending amidst cost pressures. However, consumer confidence improved slightly to -18 (previous: -21; forecast: -22), reflecting cautious optimism.
– Canada: Retail sales were unchanged at 0.4% MoM in September, indicating steady, albeit subdued, consumer spending activity.
– US: Michigan consumer sentiment rose to 71.8 (previous: 70.5; forecast: 73.7), driven by stronger labor market conditions and moderating inflation.
PMI Data
– UK: Manufacturing PMI fell to 48.6 (previous: 49.9; forecast: 50.1), indicating contraction, while services PMI dropped to 50 (previous: 52; forecast: 52.3), hovering at the threshold of expansion.
– Eurozone: Manufacturing PMI declined to 45.2 (previous: 46; forecast: 46), deepening the contraction, while services PMI fell below the expansionary level to 49.2 (previous: 51.6; forecast: 51.6).
– US: Manufacturing PMI was unchanged at 48.8, remaining in contraction territory, while services PMI rose sharply to 57 (previous: 55; forecast: 55.2), showcasing robust growth in the service sector.
Labor Market and Housing Data
– US: Building permits slightly declined to 1.416M (previous: 1.425M; forecast: 1.440M), signaling a modest cooling in the housing sector. Initial jobless claims decreased to 213K (previous: 219K; forecast: 220K), pointing to a resilient labor market.
So, what’s the big picture?
- The Eurozone is facing slowing economic activity, but trade numbers are a bright spot.
- The UK is battling rising inflation and weakening growth—stagflation risks are real here.
- Japan has ongoing trade struggles, but inflation is stabilizing.
- And in North America, both Canada and the US show steady consumer spending, with the US services sector and labor market looking especially strong.
Central bank policies are likely to remain data-dependent, with inflation dynamics and growth prospects driving upcoming monetary decisions.
Risk Sentiment Analysis Based on This Week’s Macro Data
The macroeconomic data this week paints a mixed picture of global economic conditions, and its implications for risk sentiment can be assessed by region and overall market outlook:
1. Positive Factors for Risk Appetite
Strong US Services PMI: The robust reading of 57 for US services PMI indicates continued growth in the largest sector of the economy. Combined with declining initial jobless claims, this supports confidence in the US economic resilience, which often sets the tone for global risk sentiment.
Improved Consumer Sentiment in the US: The uptick in Michigan Consumer Sentiment to 71.8 suggests that US households feel optimistic about the economy, likely reflecting easing inflationary pressures and steady employment conditions. Positive consumer sentiment typically supports risk-on behavior, particularly in equity markets.
Eurozone Trade and Current Account Strength: The sharp improvement in the Eurozone’s trade surplus (€12.5B) and current account surplus (€37B) points to strong external demand, which could mitigate recession fears in the region and provide some support for the euro.
2. Negative Factors Adding to Risk-Off Sentiment
Deteriorating Growth Indicators:
UK PMIs: Manufacturing PMI at 48.6 and services PMI dropping to 50 highlight softening economic activity in the UK. This contraction, coupled with weak retail sales and surging inflation, raises stagflation concerns.
Eurozone PMIs: Both manufacturing (45.2) and services (49.2) PMIs indicate worsening conditions, amplifying fears of a Eurozone slowdown.
Japan’s Widening Trade Deficit: The growing deficit (¥461.2B) reflects ongoing trade challenges due to weak exports, a drag on Japan’s economy.
Rising Inflation in Key Economies:
UK CPI: Surging inflation (CPI at 2.3%, core at 3.3%) risks eroding consumer purchasing power and investor confidence.
Canada CPI: Headline inflation rising to 2% could pressure the Bank of Canada to maintain a hawkish stance, dampening growth prospects.
Weaker Consumer and Business Sentiment in Europe: The Eurozone’s weaker PMIs and UK retail sales decline (2.4% YoY) suggest that domestic demand is faltering, reinforcing a risk-off narrative in these regions.
3. Broader Risk Sentiment Implications
Risk-On Drivers:
The US economy continues to outperform, with resilient services activity and a strong labor market providing a solid foundation for risk assets like equities and the US dollar. This could create a favorable environment for high-beta currencies like the AUD and NZD in the short term, especially if global sentiment improves.
Risk-Off Drivers:
- Persistent concerns over slowing global growth, especially in the Eurozone and UK, weigh on sentiment. The negative PMI readings and trade deficits in some regions (e.g., Japan) contribute to fears of economic stagnation.
- Rising inflationary pressures in the UK and Canada could lead to tighter monetary policies, potentially dampening growth and increasing risk aversion.
- The ongoing weakness in manufacturing activity globally signals a broad industrial slowdown, which often aligns with a risk-off environment.
Market Positioning and Outlook
Given the mixed data:
Currencies:
- The US dollar remains the safe-haven of choice, supported by strong domestic data.
- The Euro may see support from trade data but faces downward pressure from weak PMIs.
- The GBP could face headwinds from stagflation risks.
- Risk-sensitive currencies (AUD, NZD) may benefit if US data supports broader risk appetite but remain vulnerable to global growth fears.
Equities:
- US equity markets might retain upward momentum due to strong services growth and improving consumer sentiment.
- European and UK markets could underperform amid weak PMIs and inflation pressures.
Bonds:
Safe-haven flows into bonds are likely to persist, especially in Europe and Japan, as growth concerns dominate.
Commodities:
- Gold could see mixed demand, supported by safe-haven flows but capped by the strong US dollar.
- Oil prices may face downward pressure from weak global growth signals, particularly in Europe and Japan.
Summary
Risk sentiment this week leans cautiously risk-off, primarily driven by worsening growth indicators in Europe and Japan, and rising inflation in some economies. However, the resilience of the US economy offers a counterbalance, providing some support for risk appetite in global markets. The divergence in regional economic performance will likely keep markets volatile as traders weigh growth risks against pockets of optimism.
So, that’s the lowdown on this week’s macro data and its impact on risk sentiment. While the US economy keeps markets hopeful, weak data out of Europe and Asia has traders leaning toward caution.