US
- As expected, the Federal Open Market Committee voted to raise its target range for the Fed Funds Rate by 25bps, to 2.25% - 2.50%, increasing the interest rate on excess reserves 20bps to 2.40%. The median projection on the Fed dot plot now forecasts two rate hikes for 2019 rather than three. Despite the broadly dovish tone of the meeting, equities sold off after Chairman Powell said he saw no reason for the central bank to change its current balance sheet management approach (targeting $50bn reduction per calendar month).
- The US manufacturing sector has disappointed this week on various data points. The Empire State manufacturing index declined by a greater than expected 12.4pt to 10.9 in December, whilst the Philadelphia Fed manufacturing index declined by 3.5pt to 9.4.
- The National Association of Homebuilders index continued on its downward trajectory from a high of 74 in December 2017 to 56 in December this year. Existing home sales increased 1.9% to 5.32 million in November, beating expectations of a modest decline. Housing starts and building permits increased over the month, although in both cases this was largely due to a jump in the volatile multifamily category.
China
- Capital outflows from China picked up in November at ~$25bn vs an estimated $9bn in October. This week’s Central Economic Work Conference (CEWC) in Beijing yielded a resolution to deliver greater fiscal stimulus in 2019 via further tax cuts and increased public spending.
Europe
- In Europe, the German IFO survey fell to 101.0 in December, its lowest reading since December 2016 amid global trade tensions and Brexit uncertainty.
UK
- Despite widespread media claims of a weak 'Black Friday', November UK retail sales proved to be robust, rising 1.4% versus a 0.3% consensus expectation (excluding fuel, 1.2% versus 0.2% expected).
Rest of World
- The Bank of England and Bank of Japan meetings this week yielded no change in policy, their hands being tied, respectively, by Brexit and next year’s proposed consumption tax hike. Sweden’s Riksbank delivered its first hike in seven years, from -0.50% to -0.25%, whilst guiding that it is unlikely to hike again before the second half of next year.
- The price action in equities was once again destructive this week, with the Nasdaq entering bear market territory and Eurostoxx coming within a whisker of doing the same as it heads for its worst year since 2011. Crude oil prices declined another 10% over the week. US 10-year treasury yields touched 2.75% intra-week, fully 50bp lower than local highs touched in October/November. Gold made fresh multi-month highs.
- The tone was somewhat more constructive in FX, with the dollar generally weaker and strong performance from high-beta EMFX such as the Turkish lira, Indian rupee and Mexican peso, although the top performer on the week was actually the Japanese yen, which is traditionally regarded as a safe haven currency.