Despite broadly positive corporate earnings and economic data, global stocks ended the week 0.6% lower.
US economic releases reflected a broadly expanding economy, growing faster than widely appreciated. US preliminary third quarter GDP rose at an annualized 2.9%, well of the expected 2.5% growth rate. The economic gains were broad based, led by surging exports (10% y/y) and better than expected contributions from both inventories and non-residential investments. Markit’s October flash purchasing managers’ indexes (PMI) also signaled broad economic expansion across both manufacturing and services. Both PMIs beat expectations and hit 2016 highs on stronger new order growth and improved prices. US housing and employment data were similarly positive. The Case-Shiller Home Price Index reported a 5.1% y/y gain in housing prices in August while September new home sales rose an impressive 30% y/y, with tight supplies of new houses driving a 6.7% y/y gain in prices. Weekly jobless claims fell modestly, remaining near historic lows, while the Employment Cost Index reported positive wage growth continued during the third quarter (2.3% y/y).
While there has been no shortage of hand-wringing over the UK’s departure from the European Union, economic data continue portraying a healthy economy, growing in spite of Brexit fears. The UK’s third quarter GDP outpaced expectations, growing at an annualized 2.3% y/y, driven by strength in the services sector, the largest part of the UK economy. Similar to the US, the eurozone’s October flash PMIs expanded faster than expected on broad-based economic gains across both manufacturing and services, led by strong German manufacturing gains. France’s GDP grew slower than expected in the third quarter, expanding by 1.1% y/y annualized, shy of the 1.2% forecast.
China reported little economic data beyond industrial profits (7.7% y/y). China’s currency, the yuan, moved lower during the week as China’s central bankers signaled a willingness to allow some increased currency trading flexibility, while maintaining a stable currency outlook, suggesting little reason for any meaningful depreciation. Japan’s economic data were mixed—imports and exports both fell significantly (-16.3% y/y, -6.9% y/y respectively), though the drop-off was slightly better than dour expectations. Japanese household spending also fell less than expected (-2.1% y/y). Japan’s October manufacturing PMI rose faster than expected, on continued improvements in its long-challenged manufacturing sector.
The US enters the final, frantic weeks of Presidential campaigning. Regardless of the election results, we expect continued political gridlock is the likeliest outcome. Outside the political circus, corporate earnings will remain in focus, alongside personal spending numbers, factory orders, employment reports and a policy statement from the Federal Reserve. The eurozone reports inflation figures for October and the European Central Bank releases its economic bulletin. The UK releases home price data and a policy update from the Bank of England. China reports October PMIs and Japan releases retail sales, housing starts and construction data.
Source for all data cited is FactSet. This update constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. No assurances are made we will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Global equities are represented by the MSCI World Index. The MSCI World Index measures the performance of selected stocks in 23 developed countries and is presented net of dividend withholding taxes and uses a Luxembourg tax basis. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets.