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  • Equity markets continued their sell-off but stabilised towards the end of the week on the back of better consumer data. This week is fairly quiet, with the US on a shortened schedule due to Thanksgiving. The highlight for the UK will likely be Phillip Hammond’s budget on Wednesday, although the hung Parliament may stymie any meaningful reform and progress.

    Last week

    - Equity markets sold off

     - Bond markets were strong with Credit bouncing back

     - UK inflation came in lower than expected

     - US data was good over the week; supportive of December rate hike

     - Progress on tax reform but year-end deadline still looks optimistic

    This week

    - UK budget: Philip Hammond will unveil his 2nd budget as UK Chancellor (Wednesday)

     - US Federal Reserve meeting minutes: due out on Wednesday pm.

     - Thursday sees a raft of survey data on the Eurozone economy (PMI data)

     - Friday is “Black Friday” in the US; the market will be watching retailers results following the pre-holiday spend.

    Last Week's Highlights

    Equity markets sold off last week, with Japan giving back some of its recent strong performance; down 1.25% for the week. Energy was the weakest sector, with consumer sectors doing best as a combination of better retail sales data (discretionary) and lower bond yields (staples) helped the two sub-sectors. The UK market was down 0.63%, with materials and energy dragging most. Carillion was the worst performing stock in the All Share; down 51.96%. This takes the year-to-date returns for the stock to -90.34%.

    Bond markets were strong as inflation data came in weaker than expected. UK government bonds were up 0.4% and US Treasury bonds were up 0.25%. Credit markets halted their recent decline, with US investment grade being up 0.4% on the week, with High Yield markets flat.

    UK inflation came in at 3% last week which was 0.1% lower than expected and saves Mark Carney from having to write a letter to Philip Hammond to explain why the Bank of England have breached their 2% target (by more than 1%). Rising food prices were offset by a fall in the cost of fuel to net out at no change from the previous month, but this still puts UK inflation at a five-year high.

    Meanwhile, the labour market continued to exhibit strength, with UK unemployment being at its lowest level for 42 years (4.3%). Although this number is unchanged from the prior month, what was encouraging was the pick-up in productivity. Productivity increased by 0.9% in the 3rd quarter, which was the first quarter of growth in output per hour since Q4 2016 and is the highest rate of growth since Quarter 2 2011.

    US data was pretty strong over the week and supports the case for a rate hike at the December Federal Reserve meeting. The core CPI inflation number came in at 1.8% which beat expectations; a big deal in itself seeing as this number had under-whelmed in six out of the last seven months prior to this print. The US also saw a decent pick up in retail sales, with a 0.2% bump in purchases during October; this was better than expected following what was a great month in September following the re-stocking post the hurricanes. 

    The US made some progress on tax reform with the House of Representatives passing its version of a tax bill on Nov. 16. Given that the Senate still has to approve a version of its own—and from there, reconcile with the House to come up with a joint version—it would appear that there is still a long way to go here but President Trump is putting lots of pressure on the Republicans to get this through before the end of the year. 

    Eurozone growth (2nd estimate) for Q3 was in line at 0.6% with German and Italian growth being revised upwards. This places year-on-year growth for the Eurozone at 2.5%.  Germany saw a 0.8% growth rate during the July to September timeframe, while Italy experienced a 0.5% uptick in the same period. 

    Asset Returns

    Equities & Oil: returns are all in base currency, save for Global and Emerging which are in GBP. Bond returns are all shown in GBP. Gold in GBP. Source Bloomberg.

    Carillion’s 52% Drop Last Week Has Now Taken Yearly Losses to Over 90%

    Source: Psigma / Bloomberg 

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