U.S. and U.K Markets Mixed Heading Into Thanksgiving Week
The ten-year note yield fell for a second straight week, this time six basis points to 1.77 percent. The two-week retracement totals 17 basis points, as some of the enthusiasm has ebbed from the cyclical rotation of the previous month and a half. And spreads among the weakest credits continued to widen. Among CCC-rated corporates, option-adjusted spreads have widened 115 basis points in the past two weeks to 1,273, the widest in three years, according to Bloomberg.
Unsurprisingly, U.K. Markets Are Lackluster Amid Mixed Data, Meandering Brexit
The economic data was more mixed in the Eurozone. The flash manufacturing PMI was slightly better than expected, although it remained well in contraction territory. However, the services component was weaker than expected, pulling the composite reading lower. The U.K. was notably weaker. Both the manufacturing and services PMIs declined, pushing the composite back into contraction. The currency weakened on the news, lifting the export-oriented FTSE 100 to a one-day gain of 1.2 percent. This was enough to result in a 0.4 percent gain for the week. Curiously, for the past eleven weeks the FTSE 100 has been in a pattern of a weekly loss, followed by a weekly gain. The more domestically focused FTSE 250 index rose half that amount, on its way to a fourth straight weekly gain.
The Brexit saga seems to be moving inexorably toward its conclusion, although with no assurances. National election predictions (the election is on December 12) seem to favor Boris Johnson’s conservative party, but we all know how unreliable polls can be. The new Brexit deadline is January 31. But as we have seen, deadlines can be extended. That deadline would become moot, of course, if Johnson wins the election and parliament passes his Brexit proposal. At the same time, a range of outcomes remain possible, including everything from further negotiations with the European Union, to a second referendum, to a no-deal hard Brexit at the end of January, to simply cancelling Brexit altogether by revoking Article 50.
Investors Will Be Watching the Myriad of Data Released This Week
Despite the holiday-shortened week ahead, the economic calendar is quite full. In the U.S., scheduled reports include personal income and spending, personal consumption expenditure (PCE) deflator, durable goods orders, consumer confidence, new and pending home sales, and revised third quarter gross domestic product. At the end of the week, China is scheduled to release its official PMI indices, which are forecast to show some modest improvement.
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The Purchasing Managers’ Index™ (PMI™) is a composite index based on five of the individual indexes with the following weights: New Orders - 0.3, Output - 0.25, Employment - 0.2, Suppliers’ Delivery Times - 0.15, Stock of Items Purchased - 0.1, with the Delivery Times index inverted so that it moves in a comparable direction.
The Eurozone Manufacturing Purchasing Managers’ Index (PMI) is a weighted indicator calculated from indices of output, new orders, employment, suppliers’ delivery times and stocks of purchases.
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