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The Global Markets Weekly – 11/10/17
Taking Stock a Year Later
A year after the election, the global economy is performing admirably and DE’s outlook is for more of the same ahead. Risks remain and valuations look elevated across historical comparisons for both equities and bonds, but that has been true for years. The charts below take stock of some financial market returns in the year since the U.S. election in the form of an open-hi-lo-close chart. Key markets are indexed to 100 a few days after the election in the first, and levels for rates in the second. We include various equity indices, the dollar, some U.S. sectors against the broader S&P 500, U.S. yields, curve measures, inflation expectations, and Fed funds futures for this year. The start date is not the election night close, but the Friday immediately after, a different flavor of the usual charts. Realistically, few investors were ready to capitalize on the surprise result on the morning of the 9th. The relative gain in Financials, for example, would look far larger with an earlier start.
Coming Week’s Key Indicators and Events:While the broad contours are well known, moves in obvious trades like the dollar, or financials, or industrials, or in favor of the U.S. over the globe haven’t quite played out according to the script over the last year. The dollar is lower, while Europe and EM equities have done better than the U.S. (though the S&P 500 is still up 20%), the U.S. yield curve is flatter, and the Fed’s measure of inflation compensation is lower. Tech has done great, absolute yield levels remain higher, and a lessening of European and EM risks has helped the global equity tide come in strongly (we remind investors Eurozone GDP has been firmer than that of the U.S. in y/y terms since Q1 2016). As we look into 2018 and beyond, that all suggests that while returns on equities have come a long way, so have other fundamentals; we’d need broader disappointment than on just U.S. tax cuts/reform wrangling to feed the bears.
|Release||DE / Consensus||Comment|
|U.S.||Oct. CPI (Fr)
Oct. Retail Sales (Fr)
|0.0%/ 0.1% m/m
-0.1%/ unch m/m
|Headline settles back to 2%, energy prices driving recently. Core flat at 1.7%.
Settles back after big jump in vehicle sales, gasoline in September.
Includes Yellen, Evans, Bullard, Bostic (all Mo), Mester and Kaplan (Th).
|Euro||Revised GDP (Tu)||0.6%/ 0.6% q/q||Unchanged, country detail forthcoming.|
|U.K.||Oct CPI (Tu)||3.1%/ 3.1% y/y
|Topping in coming months, BoE on hold into mid-2018 post-Brexit?|
|Japan||Q3 Real GDP (We)||0.4%/ 0.4% q/q||Net exports up, capex too as consumer settles back after Q2 surge.|
Oct. Retail (Tu)
Oct. Ind. Prod. (Tu)
10.4% /10.5% y/y
6.3% / 6.2% y/y
|Deleveraging push picks up?
In-line moves would have IP slowing, retail accelerating in rebalancing move.