FTSE 100: Last week, the break of 4200 did not trigger a massive sell-off, instead the market continues to drift lower on thin volume centred around its 200 day moving average.
Friday saw the surprise fall in US confidence which dented sentiment of a quick US recovery and triggered a further pick up in demand for treasury bonds. The drop in consumer confidence has possibly three strands attached to it; the first is the labour market environment. It has taken some time to impact confidence but unemployment conditions over the past quarter have worsened (as highlighted by the worst then expected non-farm payroll). The realisation that this trend remains firmly in place and
iis likely to deteriorate further (market consensus is still for the unemployment rate to be in excess of 10% later this year) has dampened confidence.
The other two strands focus on the rising mortgage rates and energy prices both of which would have weakened income growth. The combined effects of all three has made consumers and of course the markets more cautious about the speed of the recovery. With risk aversion coming back into focus, the US dollar and treasury bonds have benefited. If US 10 years continue to rally then investors given the recent correlation will expect 2/10year curve to continue to flatten.
With one engine of global growth showing signs of softening this week attention focus’s on the other area of substantial growth China. During the course of the week we have a plethora of Chinese data due for release including Q2 GDP, money supply, retail sales and industrial production. The general expectations is that all the key data will come in better then expected reflecting the frontloading stimulus packages China has implemented.
In other data this week, the UK sees the release Tuesday and Wednesday of CPI, DCLG house prices and employment data. In recent weeks the UK data has surprised the market coming in better then expected. Investors will closely monitor whether this remains the case, or the UK follows a similar path to that seen in recent US data. In the US, Tuesday retail sales data will take centre stage alongside further releases of consumer confidence. Later in the week, housing data feeds through.
Sources: Reuters: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia:
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