As a long weekend commences for U.S. markets, investors are focused on the shifting central bank policy environment. While today’s employment report will be a critical factor for investors attempting to predict whether the Federal Open Market Committee will unveil any policy changes during its September 17 announcement, statements by European Central Bank President Mario Draghi yesterday leave no doubt that the liquidity spigot will remain open in Europe for the foreseeable future. According to many analysts, the recent downbeat economic data for the euro zone makes an increase in the pace of easing there increasingly likely. Meanwhile, the U.K. pound has completed a fifth consecutive week of declines versus the euro as investors wager that the Bank of England will keep historically low rates unchanged as global jitters dampen growth prospects in the U.K.
German factory orders weaken. The pace of factory orders in Germany tapered off in July, according to data released today by the Deutsche Bundesbank. The headline index slipped by 1.4 percent versus June. A primary driver for the shortfall was a drop off in foreign demand.
U.S. unemployment rate drops. The Bureau of Labor Statistics issued a mixed August employment report this morning. Nonfarm payrolls increased by 173,000 last month, below consensus estimates, but the unemployment rate declined from 5.3 percent to 5.1 percent, the lowest rate since March 2008. Average hourly earnings advanced by 0.3 percent for the month. With Federal Reserve policymakers continuing to signal that they are inclined to begin raising rates in the near term, this report increases the likelihood of a September hike.
Turkey hosts G-20 meeting amid macro woes at home. Policymakers are meeting today in Turkish capital Ankara, to discuss macro issues such as shifts in China’s currency band management and a pending Federal Reserve rate hike in the U.S. The summit kicks off just as the Turkish lira, at nearly three to one, hovers close to all-time lows against the U.S. dollar.
Japanese salaries rise. Japanese Ministry of Labor data released today reveal that wages in the country rose by 0.6 percent year-on-year in July. Adjusted for inflation, the increase was 0.3 percent, the first such increase in more than two years and a signal that Bank of Japan easing efforts are slowly achieving inflation.
Merger announced in online gambling industry. A $1.71 billion bid by Isle of Man–based gambling company GVC Holdings has secured Gibraltar–based Bwin.party Digital Entertainment in a bidding contest that has been closely watched in the digital gaming sector. GVC beats out a nearly $1 billion bid by rival 888 Holdings, which was initially accepted.
Portfolio Perspective: Tired Bull? — Ian Scott, Barclays
While there are elements of both, we suspect that the August sell-off has more to do with a swing in sentiment than a major shift in fundamentals. Our favorite sentiment measure has dipped to a point from which global equities have consistently risen since 2009, for an average six-month gain of 22 percent.
While one can certainly find some signs that the bull market is in its later stages, in our view at Barclays, they are largely confined to the U.S. Globally we see few signs of excess. A summer slowing in cross-border activity is consistent with past periods of depressed sentiment.
Ian Scott is head of global and European equity strategy for Barclays in London.
