Global Markets

Equities were down globally for the week in the days before the U.S. presidential election. Other concerns surfaced during the week as well. Doubts about OPEC's ability to cut production at its meeting later this month sent crude prices lower for the week. Earnings season continued to be mixed — no surprise there. Economic data likewise were mixed although the manufacturing purchasing managers' indexes seemed to be firming above the breakeven point.

Investors are usually cautious leading up to central bank announcements and especially before the Federal Reserve where watchers continue to vigil an interest rate increase. Parsing the announcement is a regular feature of Fed watching. The jitters were enhanced by the closeness of the U.S. presidential election. Four central banks — the Reserve Bank of Australia, Federal Reserve and the Banks of Japan and England met and all left their respective policies unchanged. A summary of each follows.

Reserve Bank of Australia

As widely anticipated, the Reserve Bank of Australia maintained its 1.5 percent cash rate where it has been since August. The Board reiterated that "inflation remains quite low", but noted that data for the September quarter were broadly as expected, with underlying inflation around 1.5 percent and below the RBA's target range of 2 percent to 3 percent. The RBA also noted that its forecasts for output growth and inflation were little changed from those of three months ago. The Bank's statement was almost a repeat of October's meeting which was Philip Lowe's first in the position of governor. In its quarterly statement on monetary policy released later in the week, the Reserve Bank of Australia tweaked its medium-term GDP forecasts to between 2.5 percent to 3.5 percent for the year ended June 2018 from the previous forecast in August for growth of between 3 percent and 4 percent. The Bank left its inflation forecast range unchanged — between 1.5 percent to 2.5 percent from June 2017 to December the following year.

Bank of Japan

The Bank of Japan maintained its current interest rate of minus 0.1 percent where it has been since the beginning of 2016. However, the BoJ did downgrade its inflation target. The BoJ said it now expects core consumer inflation to increase 1.5 percent next year, down from previous guidance of 1.7 percent. As part of its new policy framework which involves targeting the shape of the yield curve, the BoJ's target level for the long-term 10-year yield remains around zero percent. Officials voted 7 to 2 in favor. For now, officials continue to believe that purchasing these bonds at an annual rate of ¥80 trillion is consistent with meeting this target.

This decision to keep policy unchanged reflects an assessment that current policy settings will be enough to push inflation back towards its target of 2.0 percent. Under the new framework, officials have undertaken to keep expanding the monetary base until inflation exceeds 2.0 percent and "stays above the target in a stable manner". Officials noted, however, that adjustments to policy settings would be made "as appropriate".

Bank of England

As widely expected, the Bank of England's monetary policy committee (MPC) left its Bank Rate at 0.25 percent where it has been since August and the target stock of UK government bond purchases (QE) was kept at £435 billion. The decision was again unanimous. Corporate bond buying totaling £10 billion was also reaffirmed. The MPC had its new Quarterly Inflation Report (QIR) available for its decision making. The report provided plenty of justification for maintaining the status quo.

The committee appeared to all but rule out any lingering chances of a further monetary ease. Only last month Governor Mark Carney intimated that some overshoot of the 2 percent inflation target might be tolerated if the real economy needed additional monetary support. However, so far since June's Brexit vote, growth has proved surprisingly resilient and, consequently, the need for any further stimulus much less pressing. Moreover, pipeline inflation pressures associated with the pound's slide are clearly rising.

Earlier in the week, Bank of England governor Mark Carney extended his term by a year to 2019, in order to guide Britain after its exit from the European Union. Although this means that he will not serve the usual eight years as Governor, his announcement should quash recent speculation that he might be leaving the job in 2018.

Federal Reserve

As anticipated, the Federal Reserve's FOMC left its monetary policy unchanged. The fed funds target range remained 0.25 percent to 0.50 percent. Its current reinvestment policies were also left unchanged. The vote was 8 to 2. The two dissenters would have preferred a fed funds rate increase. In its statement, the FOMC said that the case for a rate increase continued to strengthen but the Committee decided to wait for "some" further evidence before moving. The FOMC noted that inflation has "increased somewhat." But the Fed's post-meeting statement reinforced expectations that Fed officials do not plan to wait much longer to increase rates.

"The committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives," according to the FOMC.

Global Stock Market Recap

Europe and the UK

Equities declined for a second consecutive week. This time the indexes swooned all five days with losses accelerating at the end of the week. There are several reasons — angst about the U.S. presidential election, mixed corporate earnings and mixed economic data. The uncertainty that continues to swirl around Brexit has weighed on investors risk appetites as well. On the week, the FTSE was down 4.3 percent, the CAC declined 3.8 percent, the DAX dropped 4.1 percent and the SMI tumbled 4.0 percent.

On Thursday, the UK High Court ruled today that the government cannot use "royal prerogative" to invoke Article 50 (triggering the two-year process of leaving the EU), but must instead seek parliamentary approval to do so. The government is appealing to the Supreme Court. It will hear the case in early December under a predetermined timetable. This means that British Prime Minister Theresa May cannot start the process of leaving the European Union without approval from Parliament. The pound sterling surged against the U.S. dollar on the news. Prime Minister Theresa May had said the Article 50 will be triggered by late March 2017, starting exit negotiations with the EU. However, the UK High Court ruled that the government must seek Parliament approval first.

Economic data were mixed. In the Eurozone, third quarter flash gross domestic product was up 0.3 percent from the previous quarter. It was up 0.3 percent in the second quarter as well. Both consumer and producer prices advanced while the jobless rate remained steady. UK construction CPM advanced. However, German retail sales tumbled. In the UK, the manufacturing PMI was down but still at a healthy level.

Asia Pacific

Equities were lower across the board — the only exception was the Shanghai Composite that added 0.7 percent. Losses ranged from 0.6 percent (SET) to 3.1 percent and 3.3 percent (Nikkei and Topix). Asian investors were nervous prior to next week's U.S. presidential election. Looming also during the week was the U.S. employment report for October which was released after markets here closed for the week. The central banks that met during the week offered no policy surprises.

Japanese shares tumbled on a strengthening yen as polls showed an extremely tight race in the U.S. presidential election. Investors ignored the October service PMI, which showed that activity in Japan's sector expanded for the first time in three months in October. Nor did they pay attention to the manufacturing index that improved for a second month and indicated growth. Similarly, the smiles were brief when the Chinese PMI readings improved.

Economic data were positive for China and Australia but mixed for Japan. China's October PMIs all were higher and above the 50 breakeven level. Australia's trade deficit narrowed and retail sales advanced more than expected. In Japan, industrial production was stagnant and retail sales were down on the year. However, the PMIs climbed further above the 50 breakeven level.

Currencies

Sterling hit $1.25 for the first time in a month on Friday — a day after an UK High Court ruled the government must seek parliamentary approval to start the process of leaving the EU, fueling hopes among investors of a "soft Brexit". After falling throughout the month of October, sterling rebounded in the week. Some of the gains came from dollar weakness amid market jitters about the outcome of next week's U.S. presidential election. But the currency also benefited from a good news from the High Court ruling, a decision by the Bank of England to upgrade its growth forecasts and stronger-than-expected growth in the UK's dominant services sector.

The U.S. dollar retreated against its major counterparts. It was down against the euro, yen, pound sterling and Australian dollar. It edged up against the Canadian dollar. Both safe haven currencies — the Swiss franc and yen — jumped on the week as investors sought safety ahead of Tuesday's U.S. election.

The dollar was mixed to end the week after the firm employment report confirmed expectations of a fed funds rate increase at the FOMC's mid-December meeting.

Selected currencies — weekly results

Indicator scoreboard

Eurozone

Third quarter flash estimate of gross domestic product was up 0.3 percent and up 1.6 percent from the same quarter a year ago and unchanged from its respective second quarter readings. Eurostat provides only very limited information in this release and there are no details on the GDP expenditure components or even the individual member performances. Nonetheless, the headline data confirm that the Eurozone economy failed to pick up any real momentum during the summer months, consistent with what has been an essentially flat trend in underlying inflation.

October harmonized index of consumer prices was up 0.5 percent from a year ago and up from 0.4 percent in September and equaled its highest level since April 2014. Positive base effects, particularly in energy, did most of the work with the two core rates relatively soft. Excluding energy, food, alcohol & tobacco inflation was steady at 0.8 percent while omitting just energy and unprocessed food it slipped 0.1 percentage points to only 0.7 percent. Energy (down 0.9 percent after down 3.0 percent) provided the main boost, partially offset by weaker food, alcohol & tobacco (0.4 percent after 0.7 percent). Non-industrial goods inflation weighed in at 0.3 percent while services were similarly steady at 1.1 percent.

October final manufacturing PMI came in at 53.5, a 0.2 point improvement on its flash estimate and a 1.8 point advance from its final September reading. It was also a 33-month high. The headline gain reflected accelerating production, new orders and employment, a combination that bodes well for sustained improvement over the rest of the quarter. Output expanded at its fastest pace since April 2014 and new business saw its second sharpest increase over the same period. At the same time, job creation touched a 5-and-a-half-year peak while the rise in backlogs was the most significant in nearly three years. Inflation developments were also positive. In terms of national PMIs the best performer was the Netherlands (55.7) ahead of Germany (55.0) and Austria (53.9). Spain (53.3) also had a decent month but France (51.8) and Italy (50.9) were less than impressive, and that despite the former finally moved back into positive growth territory.

Asia/Pacific

Japan

September industrial production was unchanged on the month after increasing 1.3 percent in August. On the year, output was up 0.8 percent. The flat headline growth in September reflected weakness in information & communications electronics equipment, electronic parts & devices and fabricated metals. This was offset by higher output of general purpose, production & business oriented machinery, transport equipment and chemicals.

September retail sales were down 1.9 percent from a year ago after sinking 2.1 percent in August. Retail sales have declined for seven consecutive months, the longest period of contraction since 2008-09. The declines have been driven by the same factors weighing on Japan's consumer price index, namely weaker energy and food prices. Retail sales of fuel fell by 6.1 percent compared with a drop of 7.9 percent in August, while food & beverage sales fell by 0.3 percent after declining 0.4 percent in August. Apparel sales were also lower offsetting higher sales for automobiles and consumer electronics.

Australia

September merchandise trade balance improved with the deficit narrowing to A$1.23 billion from a revised August deficit of A$1.89 billion (previously A$2.01 billion). This is the smallest trade deficit since December 2014. Exports rose by 1.6 percent on the month but were down 0.3 percent on the year. Imports declined 0.8 percent on the month and were down 6.1 percent on the year. Most major categories of exports recorded positive growth, including rural goods (around 13 percent of total exports), non-rural goods (around 59 percent of the total) and services (around 22 percent of the total). Exports of coal made a particularly large contribution increasing by 12 percent or A$349 million. The decline in imports was driven by lower imports of consumption goods, capital goods and non-monetary gold. Imports of intermediate and other merchandise goods and services advanced.

Americas

Canada

August monthly gross domestic product increased 0.2 percent following a downwardly revised 0.4 percent increase in July. On the year, monthly GDP was up 1.3 percent after 1.2 percent last time. Goods-producing industries output grew a monthly 0.7 percent with the main contribution coming from mining, quarrying and oil & gas extraction and utilities. Manufacturing and construction were also up, while the agriculture & forestry sector was down. There was essentially no change in the output of service producing industries. Wholesale trade, transportation & warehousing services, accommodation & food services as well as the public sector (education, health and public administration combined) increased. Finance & insurance and retail trade declined. Manufacturing output rose 0.3 percent with both durable and non-durable goods manufacturing increasing.

October employment was up 43,900. The unemployment rate remained at 7.0 percent thanks to an increase in the participation rate to 65.8 percent. The latest jump in jobs reflected wholly a 67,100 jump in part-time positions as full-time posts were down 23,100. However, the bulk of the rise was in the private sector (34,000). The public sector was up 9,800 while the number of self-employed was essentially flat. Goods producing industries added 20,700 although within this manufacturing shed 7,500. Rather, the improvement here was due to construction (23,800) and natural resources (10,200). Service sector employment rose 23,400, in large part on the back of trade (18,800), education (15,800) and other services (17,800). The only decline of any size was in business, building & other support services (15,000) although accommodation and food (down 9,800) also had a poor month.

Bottom line

Four central banks opted to keep their respective monetary policies unchanged. The Federal Reserve moved closer to a December fed funds rate increase. Although mixed, economic data were mostly positive. Mark Carney decided to extend his term as governor of the Bank of England for a sixth year.

Looking Ahead: November 7 through November 11, 2016

Anne D Picker is the author of International Economic Indicators and Central Banks.