November Week 2

   From last two weeks, financial markets had been fluctuated by political issues and company earnings, rather than economic data. This increases volatility in the market, therefore more investors look for taking margin in a short term. Without significant economic data, the investors loose confidence on the markets, showing a box pattern. This pattern will be shown until political issues like Japanese tax-sales settle down.

   The S&P 500 increased by 0.27% without a significant movement recognized this week. As investors are already influenced by interest rate issues, U.S. market focused more on company earning and other financial market indexes. Yet there were several economic indicators that affect on the market. JOLTS Job Opening decreased and Initial Jobless Claim increased, but they are still considered in the "safe" level that labor market is still improving. Retail sales increased by 0.3% and import price declined by 1.3%. As oil price continuously declined, retail price had got cheaper and increase consumer spending. It might be helpful for U.S. economy, but it can restrain inflation rate. The President of Federal Reserve Bank of Philadelphia Charles Plosser, on the other hand, urged that the markets should acknowledge the interest rate may begin to increase sooner than previously anticipated. It means that even though strong dollar and decrease in oil price are temporary factors that the Fed. believes that inflation will move close to the Fed.'s goal quickly. There are still different views in the Fed. that the investors are taking moments before moving their steps.

   Asian market continuously rose as Chinese government implemented Hu-gang Tong that links Shanghai-Hong Kong to exchange shares. Japanese government might delay sales-tax that planned in April. There are still high political risks and uncertainties, but the market is positively reacting as the cabinet pushing hard to delay the proposal.

   While Japanese Yen kept depreciating, the delay of sales-tax gave a positive outlook on the market. While real income stagnated, increasing sales-tax would give opposite results that decreasing consumer consumption, which eventually put the economy into temporary recession. The problem of Japanese economy is not only inflation rate. In a long term, the government needs to worry about government debt and keeping the market confidence without government stimulus. Because the government is unsure about whether the companies can keep up its growth after sales-tax increase, it now tries to delay it.

   With depreciated Japanese Yen, Japanese Adjusted Current Account rose more than expected. But the increment caused by weak Yen, not increase of exports. Chinese Industrial Production declined to 7.7% as the global economy slows down.

   European economy needs more time to recover than previously anticipated. The Bank of England Inflation Report projects that United Kingdom will experience growth of 3.5% this year, 2.9% next year and 2.6% for each of the following two years; it is slightly weaker than growth projection in August. Its inflation rate is projected to fall to 1.2%, and expect it to fall below 1% at some point during next six months. As a result, the BOE is pessimistic about increasing interest rate in a short term; it will keep current low interest rate for a long time. It brought a positive perspective on the market, reading FTSE 100 to 1.11% increase this week.

   Other than U.K., EU economic indicators generally show positive economic outlook. Even though its CPI and GDP stagnated at 0.4% and 0.8%, German GDP got out of technical recessions. But there were high tensions between Ukraine and Russia this week, which restricted market movement in Germany. The ECB is still pessimistic about additional stimulus; it seems like investors need better economic outlook to believe in market. The ECB President Mario Draghi stated on Wednesday that the ECB is already implemented three stimulus program: TLTROs, ABS and covered bonds purchasing programs. He explained that those stimulus need more time to have an impact on the market, which suggests that the ECB would not put additional stimulus in a short term.

                                                   

   Yen still depreciated as it adds more and more stimulus, and U.K. Pound also depreciated as the BOE decided to keep low interest for a long time. With strong USD coming from low oil price, most of the currencies against USD depreciated this week, and this phenomenon is likely to continue for a mean time.

   Crude Oil has been an ongoing issue that hurts global economy for last six months. Because supply has increased while the consumption has not caught it up as the global economy slows down, oil price continuously decreased. As matter of fact, recent industrial production data in China and EU doesn't show a big improvement that this low oil price is likely to continue.

November Week 1

   The S&P 500 rose 0.49% this week as there were mixed views of economic indicators and monetary policies. ISM Manufacturing PMI shows a positive industrial outlook that it exceeds market forecast. Investors worried that slow in China economy and slowdown in eurozone would decelerate U.S. economy as well, but it turns out that manufacturers have more optimistic view. Along with the PMI, Factory Order declined by 0.6% but this decline was lead by airplane order; it had a restricted impact on the market.
   In fact, there was a controversial economic data was released on last Friday: labor market. While unemployment rate declined to 5.8% and the Participant Rate rose by 0.1%, Average Hourly Earnings and Nonfarm Payroll have declined. These indicators suggest that U.S. labor market still has a room for improvement that they wouldn't pressure the Fed. to increase the interest rate in anytime soon. Janet Yellen added on Friday that "normalization could lead to some heightened financial volatility." It means that the Fed. will conduct additional stress test or give more time for investors to adjust into new interest rate.
   As a result, the S&P 500 had a restricted movement this week.
 


   European market had more issues than U.S. market this week, but it showed a restricted movement.

   Main issues throughout the week were PMIs, report from European Commission, higher geopolitical tensions between Ukraine and Russia, and Draghi's speech on Thursday. Unlike U.S., eurozone showed weak Manufacturing PMIs. German PMI decreased to 51.4, which was below forecast of 51.8, and EU PMI also declined to 50.6, also below the forecast of 50.7. Service PMI was even worse that U.K. Service PMI declined to 56.2, below forecast of 58.5.
   Those poor economic indicators were expected in a way. Geopolitical tensions last too long, which continuously weakened eurozone economy, especially manufacturing industry in Germany. Surprise came from U.K. Service PMI that that had a sudden decline from past month. But the facts that it still maintains high level  and the housing price stabilization resulted as a restricted market movement.
   After the BOJ announced additional stimulus on October 31, there were voices that the ECB should implement the quantitative easing. As a matter of fact, the European Commission statement implied additional stimulus on the market, given the consideration that eurozone growth will be only 0.8% in 2014 and 1.1% in 2015, and inflation rate will be 0.6% in 2014 and 1.0% in 2015. Mario Draghi added on the speech that he is still considering stimulus on the market. The thing is, he had kept saying that for months now. It is still "promise" rather than "action." The market will not have strong respond unless the ECB actually implements new stimulus in the market.