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BOV Market Watch - Week ending 25 November 2016
25 Nov 2016

Eurozone business activity points to solid growth. A survey of purchasing managers released this week showed that the Eurozone businesses activity picked up strongly in November. IHS Markit chief business economist Chris Williamson said that new data is giving “plenty of signs that growth will continue to accelerate”. Markit said that its preliminary November Composite Purchasing Managers Index (PMI) for the Eurozone rose from 53.3 in October to 54.1 points in November. Any reading above 50 suggests that the economy is expanding. Mr Williamson said that the figures were consistent with 0.4% growth in the last quarter of 2016 with Germany’s growth anticipated to rise by 0.5%. Mr Williamson said, “France is also seen to be enjoying its best spell since the start of the year”. He said that policymakers will also “be pleased to see inflationary pressures are intensifying steadily” which might mean that the European Central Bank will reduce its quantitative easing program.

Chancellor Hammond delivers Autumn Statement on budget policy. U.K. Chancellor of the Exchequer Phillip Hammond delivered his first “Autumn Statement” on budget policy after taking office in July, following the Brexit vote. Chancellor Hammond’s said that U.K. economic growth is expected to slow significantly in the coming year and that U.K. must take fiscal imbalances by 2020 due to high uncertainty and weaker outlook. In 2017, the Office for Budget Responsibility (OBR) forecasts growth to slow from 2.2% predicted in March to 1.4%. The Chancellor said that the expected sharp decline was attributed to lower investment and weaker consumer demand, driven by greater uncertainty and by higher inflation resulting from sterling’s depreciation. Hammond said that, in the meantime growth outlook for this year was increased to 2.1% from 2% in March. However, the growth rate is expected to come in at 1.7% for 2019 and 2.1% for 2020.

German private sector growth eases slightly in November. A survey released by IHS Markit showed that Germany’s private sector slowed marginally in November after increasing to a ten-month high in October. The composite index fell from 55.1 in October to 54.9 in November. A reading exceeding 50 indicates growth in the sector. The November reading was slightly lower than that forecasted in the Reuter’s poll of 55 but still above 50. The survey indexes showed that the services PMI climbed to a six-month high of 55.0 in November from 54.2 in October, though it was expected to fall to 54.0. Factory PMI fell to 54.4 from a 33-month high of 55.0 in October. Economists had projected this to fall to 54.8.

U.S. existing home sales unexpectedly climb to nearly ten-Year high. A report published by the National Association of Realtors (NAR) showed that existing home sales in the U.S. rose unexpectedly in the month of October with sales being at their highest rate in nearly a decade. Existing home sales rose by 2% to an annual rate of 5.60 million in October after an increase of 3.6% to a revised 5.49 million in September. Economists had expected a decline of 0.9% to a rate of 5.42 million in October from the 5.47 million in the prior month. Following this unexpected rise, existing home sales increased to their highest level after reaching 5.79 million in February 2007. NAR said that at the end of October there were 2.02 million existing home sales available for sale whilst at the end of September there were 2.03 million. New home sales are expected to decline in October to a rate of 590,000 following a 3.1% rise to a rate of 593,000 in September.

China’s business sentiment indicator picked up in November. Chinese business confidence improved slightly in November after falling in the previous month indicating that increased stability was resonating the business leaders. The MNI business sentiment indicator gives a recurring snapshot of the Chinese economy through the lens of business executives in the manufacturing and services industries. The MNI improved by 1.7% to 53.1 in November following a drop of 6.7% in October to a 5-month low of 52.2. The rise in November was influenced by an increase in new orders and output and the recent depreciation in the yuan. Andy Wu, Senior Economist of MNI indicators, said, “Looking ahead, companies remain optimistic about production, demand and their financial standing, underpinning sentiment towards the business environment”.

Australia construction activity falls by 4.9% in the third quarter. The Australian Bureau of Statistics said that the total value of construction work done in Australia declined on a seasonally adjusted basis by 4.9% in third quarter, standing at A$46.147 after a decline of 3.7% in the second quarter. Year-on-year the value of construction work declined by 11.1%. The value of building work fell by 5.7% on a quarterly basis and increased by 1.4% on an annual basis to A$25.886 billion. Residential building fell by 3.1% in the September quarter and increased by 6.3% over the year to A$17.597. The value of commercial building was down by 10.9% on quarter and 7.6% on year to A$8.288 billion. Engineering construction fell by 3.8% on quarter and 23.2% on year to A$20.261 billion.

Major U.S. stock indices at record highs. The four main U.S. stock market indices closed at all-time highs again on Tuesday 22, with the Dow Jones Industrial Average ending above 19,000 and the S&P 500 finishing above 2,200 for the first time ever. In the meantime, the technology-heavy Nasdaq was close to a new record high. The prospects of fiscal stimulus have risen sharply since November 8, when Donald Trump stunned the world by winning the U.S. presidential election. Investors and traders were quick to adjust positions, shifting large amounts of assets into sectors that would benefit from fiscal spending.

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