Weekly Keys: What is happening this week?
Good macro data and the extension of fiscal measures bolster increases in the S&P 500, pushing it very close to all-time highs.
Last week’s events
A quiet week in Europe. The German manufacturing PMIs rebounded again, pointing to some growth in the coming months. The United Kingdom also released PMI data and although worse than expected they are still considerably higher than the German ones, at 53.3 for the manufacturing index and 56.5 for services.
No changes came out of the BoE meeting, and interest rates and measures therefore remain the same. The GDP forecast for 2020 has improved, with a predicted shrinkage of 9.5% instead of the 14% announced in June.
Very intense week in terms of macro data with pleasant surprises in most indicators. The manufacturing PMI came in at 54.2 points (six tenths higher than expected) and services at 58.1 points (3.1 points more than analysts’ predictions). There were also pleasant surprises in the July payrolls data (1,763,000 vs 1,600,000 expected) and the unemployment rate (10.2% real vs 10.5% expected).
Plus, the week ended with Donald Trump’s announcement to extend the fiscal stimulus measures. In fact, we would not be surprised to see a significant extension in view of the elections in November.
The week ahead
The German ZEW Economic Sentiment Index and the preliminary second-quarter GDP data for the United Kingdom will be the highlights of the week in Europe. As we mentioned earlier, last week’s BoE meeting forecast shrinkage of 9.5%, so the implicit recovery that the British institution points to for the next six months of the year is very positive.
This week will also see the release of the manufacturing production data, with an estimated growth of around 10%.
On Tuesday we’ll see the producer price index, expected to climb 0.3% after losing two tenths in June. This will be followed on Wednesday by the core inflation data, i.e. excluding food and energy, which we expect to remain stable at last month’s figure of 0.2%. The week will end with retails sales, which should be starting to stabilise after the tremendous volatility of the last four months.
Several weeks have passed since the market crisis associated with the global spread of COVID-19: weeks during which we have witnessed extreme financial market developments.
The surge to the U.S. dollar given its perceived safe-haven status has driven several EM currencies to record lows against the greenback in recent weeks, such as the Turkish lira, Mexican peso and Brazilian real.