Fundamental Analysis

Weekly Roundup Report 16/06/2017

• July 18, 2017

EVENT RECAP: WEEK ENDING 16^th JUNE 2017

North America The most anticipated event of the week was the FOMC meeting which took place on Wednesday 14^th June. The Committee agreed to raise the Federal Funds rate by 25 basis points, representing the third rate hike in six months with one more hike expected by the end of the year. The rise came against a backdrop of falling consumer prices and a drop in consumer spending, which resulted in a 0.1% contraction in CPI for May. Core Retail Sales also contracted by 0.3% during the month of May. The basis for the hike according to the committee’s statement was a strengthening labour market and increasing economic activity. However, The Fed reiterated that monetary policy remains ‘accommodative’ and dependent on incoming economic data.   Asia Pacific Factory output in China rose by almost 7% year-on-year for May against expectations of a 6.3% rise, according to the National Bureau of Statistics. At the same time, retail sales were flat at 10.7% in May representing no change from April. Indicators suggest that economic growth in China was stable for May and should be healthy for the second quarter. So far, the introduction of tougher lending conditions appears to not have affected growth. In New Zealand, economic growth rose less than expected for the first quarter, growing 0.5%. This represents a modest rise over the quarter ending December, where growth rose by 0.4%. Despite higher dairy production, some slowdown in the services sector has impacted growth.   United Kingdom The Bank of England’s Monetary Policy Committee appears to be heading closer to a policy change. Three members of the committee voted for a rate hike which is the closest the bank has come to tightening monetary policy since the start of the recession.  Markets have priced in a 50% possibility of a hike within the next year, however, the unexpected change in sentiment within the committee reflects political and economic uncertainty for the U.K. economy. Additionally, CPI data showed that inflation grew at the fastest pace since 2013. A weaker pound facilitated consumer spending in recreational goods and holidays with the rate of growth rising to 2.9% for May. In contrast, retail sales contracted by 1.2% when compared with April. A contraction of 0.9% was expected yet indicators suggested that a faster slowdown in food sales contributed to the fall in growth.   Europe Economic sentiment in Germany worsened by 2 points in June, as economists expected a slowdown in growth in the Eurozone. Although respondents in the German Economic ZEW Sentiment report expected growth in Germany to be healthy, Eurozone inflation was expected to remain at a moderate level.