Last Week In Markets: Sept 14 - Sept 18 2020

Global equities were flat amid several central banks meeting to set monetary policy.

In the US, The Conference Board’s Leading Economic Index (LEI) rose 1.2% m/m in August, following increases in July and June. August industrial production increased 0.4% m/m but decreased -7.7% y/y—both missing expectations. August retail sales grew 0.6% m/m, lower than forecast. While retail sales and industrial production rose month-over-month, they each slowed from their earlier pace, triggering fears the economic recovery may be faltering. In our view, this is an example of reading too much into typically volatile economic data. Upon closer inspection, we think these figures show the US recovery persists. For more information, please see our 9/17/2020 commentary “A Word on August Retail Sales and Industrial Production.” On Wednesday, the Fed left the fed-funds target range unchanged at 0.0% – 0.25% and forecasts from Fed officials hinted rates will remain near zero through 2023. However, presuming today’s projections write policy in stone through 2023 doesn’t account for how the Fed works or the Fed’s history of changing its mind. For more information, please see our 9/17/2020 article “Don’t Presume ‘Forward Guidance’ Guides Fed Policy.”

In the eurozone, August core consumer prices (excluding energy, food, alcohol and tobacco) rose 0.4% y/y, in line with the initial estimate. July industrial production increased 4.1% m/m but fell 7.7% y/y. In the UK, August core consumer prices (excluding energy, food, alcohol and tobacco) rose 0.9% y/y, higher than expected. August retail sales increased 2.8% y/y, lower than forecast. The Bank of England left interest rates unchanged at 0.1%. Last Friday, the UK and Japan agreed to a trade agreement in principle to eliminate tariffs on 99% of goods exported between the countries. In our view, the announcement is a positive step for post-Brexit UK trade. However, as Japan represents only 2% of UK trade, the economic benefits will likely be modest. For more information, please see our 9/15/2020 commentary “On the UK’s Trade Deal with Japan.”

In Japan, the legislature confirmed now-former Chief Cabinet Secretary Yoshihide Suga as the new prime minister on Wednesday. In our view, the appointment mostly extends the status quo for Japanese politics—and their influence on the country’s economy and stocks. For more, please see our 9/14/2020 commentary “Suga Takes the Reins.” August imports and exports fell 20.8% y/y and 14.8% y/y, respectively. The Bank of Japan also left monetary policy unchanged. In China, August retail sales and industrial production rose 0.5% y/y and 5.6% y/y, respectively—both beating expectations.

The Week Ahead

The US, UK, Japan and eurozone report preliminary September manufacturing and services Purchasing Managers’ Indexes. The US also releases preliminary August durable goods orders. The eurozone posts August loan growth.

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 the maximum rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets.