Fed on hold, but still thinking of hiking in December. The Fed’s post-meeting statement was a bit more hawkish with US consumer spending and investment seen as “solid”, less concern about global developments, and a clear statement that it will decide in December whether to raise the Fed Funds rate. December hike is arguably still less than a 50/50 proposition.
United States
US economic data was on the soft side, with falls in home sales, durable goods orders, consumer confidence and the Markit services Purchasing Managers’ Index (PMI) contradicting the Fed’s more upbeat view on the US economy.
US September quarter earnings results were better. With 68% of S&P 500 companies having reported, 75% have beaten earnings expectations. But only 44% have beaten on sales, as the strong US dollar and oil price fall weigh.
In the US, October employment data (Friday) will be watched very closely as a guide to whether the Fed will raise rates in December. Growth in US employment costs of just 2% year-on-year (yoy) in the September quarter, and the Fed’s preferred measure of inflation stuck at just 1.3% yoy, do not support the case for a December hike and perhaps see the Fed delaying into 2016.
Meanwhile, the risk of a US debt default next month or government shutdown in December has been all but eliminated by a bi-partisan deal that will suspend the debt ceiling to March 2017 and fund the government for two years. US congressional politics remains low risk for financial markets.
Eurozone
Eurozone economic confidence improved further in October, pointing to okay growth. However, a slowing in private lending growth in August would have concerned the European Central Bank, as would inflation that remained well below target in October.
Asia
Not much to get excited about from China’s fifth plenum, beyond the shift from a one child to a two child policy. Allowing all couples to have two children is a big move for China, but it won’t impact the labour force for 15-20 years and will still see the population decline, as two per couple is still below replacement and it’s doubtful that all urban residents want to have more anyway. So it’s hard to see much economic impact. In terms of growth, a target to double per capita income by 2020 implies a 6.5% per annum GDP growth target for the next five years, which is in line with expectations and reflects China’s slowing population and productivity growth, as the focus shifts from investment to consumption.
In terms of the recovery in Chinese shares we continue to see good medium-term return potential, particularly Chinese companies listed in Hong Kong, where the H-share market is trading on a forward price/earnings ratio of 7.6 times.
Japanese economic data was a bit more upbeat. September household spending was weak, but industrial production rose, the unemployment rate remains low and the jobs-to-applicants ratio is now at its highest since 1992. There was also good news on the inflation front with core inflation at 0.9% yoy, its highest since 1994. There is still a way to go to reach the 2% inflation target though, and so while the Bank of Japan made no change to its monetary stimulus program at its October meeting, the pressure remains for further easing.
Closer to home, Budget has been tabled and it's full of crap. Also I have yet to share out important Malaysian economic indicators, hopefully I'll get there soon.
Aug 22: Alarming Figures of Malaysia's Debt Problem
Aug 16: Stuck in the Middle of Nowhere
Aug 5: The Risk of Holding Ringgit is Skyrocketing, WTB Donations
July 26: Sunday Lite: Flip Flop In Malaysia's Property Market
I saw an interesting article from TheEdge about property (I think I was reading it on the news stand). By the end of 2016, many units that were sold under DIBS are going to have to start servicing their loans. Boleh tak? Certainly you know the market has been soft lately and looks to remain so.
Plus the below how long more can the middle class take all these hits?
No comments:
Post a Comment