Weekly house view | Trump’s hawkish team spoils the party

The week in review

The euphoria surrounding the election of Donald Trump seemed to fade last week, aided by signals from the Fed that it was in no hurry to cut interest rates. Although the banking and energy sectors performed better, the S&P 500i dropped 2.1% over the week (in USD), while the small-cap Russell 2000ii suffered even more from the hike in bond yields, ceding 4%. European indexes did comparatively better. Chinese indexes continued to suffer from fears of trade tariffs and disappointment at the details of the recent fiscal stimulus, with the MSCI Chinaiii index down 5.9% (in USD) over the week. In bonds, the increase in US consumer inflation and one-year inflation expectations together with market concerns about the tenure of the incoming administration’s policies caused US yields to march higher. US credit prices slid, especially on investment-grade bonds. However, despite some widening last week, low spreads over Treasuries and talk of tax cuts and deregulation meant corporate bond issuance remained strong.  Higher US Treasury yields amid continued speculation around trade tariffs meant the US dollar kept marching higher to the detriment of gold and oil prices.

Quote of the week

"The economy is not sending any signals that we need to be in a hurry to lower rates,” Fed Chair Jay Powell said in remarks for business leaders.

Key data

The headline US consumer price index (CPI) rose to an annual rate of 2.6% in October from 2.4% in September, while core CPI was flat at 3.3%. US retail sales last month rose 0.4% month-on-month in October, down from a 0.8% rise in September. US industrial production dropped 0.3% in October from September, but the Empire State manufacturing index for New York shot up to 31.2 points this month from -11.9 in October.

Retail sales in China rose at an annual rate of 4.8% in October, the fastest rate in eight months. According to preliminary figures, 3Q GDP in the UK rose 0.1%, well down from 0.5% in Q2. Industrial production in the UK fell 0.5% in September from August and was 1.8% down on a year before.