Week In Review

Europe in Focus Amid US Holiday

A review of the week's top global economic and earnings news.

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For the week ending 24 November 2017

  • German coalition talks fail, snap election possible
  • United Kingdom mulls €40 billion Brexit payment
  • European economy powers ahead
  • Yellen: Low inflation a “mystery”

 

Global equities were modestly higher on the week amid strong global economic momentum. The yield on the US 10-year Treasury note was little changed, at 2.33%, but the price of a barrel of West Texas Intermediate crude oil rose to the highest level in over two years, at $58.75, aided in part by a pipeline shutdown. Volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX), drifted lower this week, falling to 9.8 from above 11 last week.

MACRO NEWS

Pressure mounts for German grand coalition
Talks between Chancellor Angela Merkel’s Christian Democratic Union (CDU), the Greens and the Free Democratic Party (FDP) broke down on Sunday evening, throwing Germany into a nearly unprecedented political crisis. As a result, German president Frank-Walter Steinmeier has appealed to the center-left Social Democratic Party (SPD), the second largest vote-getter in the 24 September general election, to form a grand coalition with Merkel’s party. SPD leader Martin Schulz has thus far declined to join a coalition, believing that being a coalition partner in the previous government hurt his party at the polls in September. Steinmeier has appealed to Shulz to reconsider for the good of the country. If the SPD does not acquiesce, fresh elections in early 2018 seem likely.

UK floats Brexit payment
At a mid-December summit, the European Union will determine whether sufficient progress has been made in three key areas in order for talks to advance on a second track on the future trade relationship   between the two sides. The three areas of critical importance to the EU are the rights of EU citizens residing in the United Kingdom, the “divorce bill” payment the UK will pay as it leaves the EU and the thorny issue of how to deal with the border between Northern Ireland and the Irish Republic. In an effort to advance negotiations, the UK government has floated payment figures of as much as €40 billion. Press reports indicate that EU officials have received the overture positively. Of the three policy areas, the border of Northern Ireland is seen as the most difficult to settle. Complicating that delicate issue is the precarious state of the Irish Republic's government, with the country’s deputy prime minister embroiled in scandal.

Europe continues business boom
Flash readings of November purchasing managers’ indices in the eurozone show that the manufacturing and services sectors had their best combined month since April 2011. Forward-looking indicators, such as unfilled orders, were particularly robust, suggesting growth will continue in the months ahead.

Yellen mystified by lowflation
In what will likely be one of her last public appearances as chair of the US Federal Reserve, Janet Yellen said this week that the challenge the Fed faces is how to craft a monetary policy that maintains a strong labor market while also moving inflation back up toward the Fed’s 2% target. Yellen expressed surprise at the low levels of inflation in 2017, given low unemployment figures and stable prices for the dollar and oil. Yellen’s term ends on 8 February, and she recently announced that she will resign from the Board of Governors upon the confirmation of Jerome Powell as her replacement as chair.

THE WEEK AHEAD

 

Date

Country/Area

Release/Event

Mon, 27 Nov

United States

New home sales

Tue, 28 Nov

US

Wholesale inventories, Case-Shiller home price index

Tue, 28 Nov

US

Fed’s Powell confirmation hearing

Wed, 29 Nov

eurozone

Consumer and business sentiment

Wed, 29 Nov

US

Q3 gross domestic product, pending home sales

Thu, 30 Nov

US

Personal income and spending

Fri, 1 Dec

global

Manufacturing purchasing managers’ indices
Fri, 1 Dec  Canada  September gross domestic product 

 

Stay focused and diversified
In any market environment, we strongly believe that investors should stay diversified across a variety of asset classes. By working closely with your financial advisor, you can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon and tolerance for risk. Diversification does not guarantee a profit or protect against loss. 

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Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg New; Financial Times; Forbes.com; CNNMoney.com; NBCNews.com.

This content is directed at investment professionals only.  

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