The US cities of Houston and Miami were battered by two super hurricanes, causing severe damages to lives and properties........
Charles Ma Client Investment Strategist Greater China & South East Asia Retail Distribution
Our thoughts are with those affected by the hurricanes. As Houston is a major centre for the petrochemical production and Miami is a major tourist destination, we expect the macroeconomics data from the US to reflect the disruptions caused by the hurricanes in the weeks to come. But, if history is of any indication, the disruptions in the US macroeconomics data should be short-lived. In 2005, US retail sales figures were sharply lower after two hurricanes hit Southern US. But retail sales rebounded within several months when re-development effort had kick in.
In the last week, regional equity markets went at different directions after the September’s Federal Open Market Committee (FOMC) meeting with European equities changing tack and started outperforming US equities while emerging market equities retreated. With Chair Yellen delivering a more hawkish tone than investors have expected, US treasury yield rose while the strengthening of the EUR (vs. USD) has stalled. With a weakened euro, sentiments toward European equities improved.
The Week Ahead
In the US, both of the US ISM Manufacturing and Non-Manufacturing indices for September will be reported next week. After reaching the highest level for the past two years and in view of the effects of the hurricanes, we expect the September’s ISM Manufacturing Index to soften but remain very much in the expansion zone of above 50’s. For the hard data, the factory orders for August will be released next week. After falling 3% MoM in July, the market is expecting the factory orders figure to stabilise with a small gain in August. The month on month reading of the factory orders is often subject to wide swing due to civilian aircraft orders. Investors dialled down July’s expectation after Boeing announced orders of more than 500 planes in June after the Paris Air Show. On a year on year basis, US factory orders have been on an uptrend for the past two years. Next week we will see the initial jobless claims for the week for Sept 30 and the unemployment rate for September. Thus far in September, the weekly jobless claim figure has been improving every week. But for next week, we may see an uptick of the jobless claim figure largely due to the hurricane.
Aggregating the weekly jobless claim figures in September, the unemployment rate for September is expected to remain at 4.4%, the same as previous month.
Turning to Europe, the final reading of Markit Eurozone Manufacturing PMI index will be released next Monday. Investors will be interested to see if there is any revision to the final reading. The Markit Eurozone Manufacturing PMI has been trending upward since mid-2016 and the preliminary reading of 56.7 for September is the highest reading for the past five years. If the Germany’s ZEW survey is of any indication, the September reading for Markit Eurozone Manufacturing PMI should remain elevated. The September’s ZEW Survey Expectations rose to 17 versus market expectation of 12. On the same day, the August’s Unemployment Rate for the Eurozone will also be available. As the Eurozone economy continues to improve, the unemployment rate should continue to trend downward. The September’s Markit UK PMI Manufacturing Index will be released next week. Although the August’s reading of the Markit UK PMI Manufacturing index has exceeded market expectation, the headwind of UK’s economy persists. The British Chambers of Commerce has recently downgraded its GDP forecasts for 2018 and 2019, citing a weaker contribution from net trade and more subdued consumption.
Despite heightened geopolitical risk, namely the North Korea crisis, global cyclical recovery remains on track. Although US macro data may soften in the next few weeks due to the hurricanes, the situation should be short lived and would not alter its recovery path. The recovery of the Eurozone continues to gather pace. Investors should maintain a diversified portfolio and stay invested.