Eurozone GDP growth was 0.3% quarter on quater in Q3, according to Eurostat’s data released on Monday. That was an unchanged growth rate from the previous quarter and corresponds to an annual rate of 1.4 percent. Consumer prices in the 12 months through October rose 0.5 percent, up from 0.4 percent in the 12 months through September.

The outcome was in line with analysts’ expectations.  Some economists suppose that eurozone will grow more quickly in the current quarter. The region’s economy seems to have shrugged off the “Brexit” vote from the summer, and Europe is benefiting from the stronger economy in the United States, the biggest market for eurozone exports.

The U.S. economy surged in the third quarter, growing at the fastest rate in two years. Gross domestic product increased at a 2.9% annual rate after rising just 1.4 percent in the second quarter. Economists had expected 2.5% growth. Better-than-expected GDP reading put the Federal Reserve on track to boost interest rates next month.

China

According to economic data released in China, country’s economy expanded 6.7 per cent in the third quarter, as widely expected, with state investment, strong growth in services and an ongoing property boom outweighing the continued weakness of the export sector.

The year-on-year data shows that the world’s second biggest economy is on track to meet a government target of 6.5 to 7 per cent growth for the year. The Chinese economy grew 6.9 per cent in 2015, the slowest pace in a quarter of a century.

Chinese state media characterised the GDP data as a sign that the economy “stabilised with a solid performance”.

Oil in a global economy

Oil declined as OPEC’s internal disagreements undermined efforts among major suppliers to reach an agreement in Vienna on trimming output to support prices. 

The discussions were supposed to pave the way for a detailed proposal on how to cut production by between 200,000 and 700,000 barrels a day, about 1% to 2%. However, they ended with a resolution only to continue discussions in November. OPEC members Iran and Iraq disagreed with the organization’s data on production levels and refused to limit their crude output. Iraq, the second-largest producer in the cartel, is reportedly asking for exemptions from any production limits due to disruptions caused by the insurgency linked to the Islamic State terrorist group. Other members, including Iran, Libya and Nigeria already have exemptions. While Libya and Nigeria have their own insurgencies to deal with, Iran has been ramping up production ever since international sanctions against it were lifted earlier this year.

Precious metals

Gold rose 29% over the first seven months of 2016, pushed by investors seeking a haven amid the uncertainty caused by the United Kingdom’s vote to leave the European Union, as well as cuts by central banks in Japan and Europe that sent interest rates to record lows. Since early August, however, gold prices have skidded as investors have become more confident that the U.S. Federal Reserve will raise rates before long. Consequently, there will be a good option to back away from gold in favor of the potentially higher-yielding bonds.

Currencies

Yuan drops to six-year low. The weaker yuan and relative calm among investors are good news for China’s central bank. A falling currency makes Chinese exports more competitive and could boost an economy struggling with slowing growth. The yuan has declined 1.6% versus the dollar, while the yuan has gained against other major currencies like the yen and euro.

The US dollar dropped sharply after the U.S. Federal Bureau of Investigation (FBI) revealed its probe of newly found emails related to Clinton’s use of a private server. The decline of the US dollar so far means an important, and maybe unexpected, correction, considering it took place during the second half of Friday’s American session and also after the release of better – than-expected US GDP data. 

The political campaign, after FBI revelation could have a large impact on the currency market, that will surely also be affected by the FOMC decision and the US employment report. 

Investment Recommendation from Jefferson Trust

Equities

  • Overweight in equities;
  • Prefer Emerging Market Equities. EM valuations are still attractive. The three largest index members—China, Taiwan and Korea, which together account for over 50% of EM market capitalization—are still among the cheapest.

Bonds

  • Underweight in bonds;
  • Prefer both US and European High Yield Bonds, with a preference USD market.

Endnotes

1. The Irish Times: “Chinese economy grows 6.7% as construction sector booms”, Clifford Coonan, 2016, <http://www. irishtimes.com/business/economy/chinese-economy-grows-6-7-as-construction-sector-booms-1.2835182>;

2. Bloomberg: “Oil Extends Decline as OPEC Splits Prevent Deal to Curb Supply”, Ben Sharples, 2016, <http://www.bloomberg.com/news/articles/2016-10-30/oil-extends-decline-as-opec-splits-prevent-deal-to-curb-supply>;

3. The Wall Street Journal: “OPEC Fails to Finalize Proposal to Implement Production Cut”, Beunoit Faucon, 2016, <http://www.wsj.com/articles/opec-secretary-general-warns-against-delaying-production-cuts-1477748202>;

4. The Telegraph: “Talks to curb oil output stall amid Opec disagreement”, Emily Gosden, 2016, <http://www.telegraph.co.uk/business/2016/10/30/talks-to-curb-oil-output-stall-amid-opec-disagreement/>;

5. International Business Times: “OPEC Meeting: Oil Prices Fall As Iran, Iraq Disagree With Production Cuts”, Himanshu Goenka, 2016, <http://www.ibtimes.com/opec-meeting-oil-prices-fall-iran-iraq-disagree-production-cuts-2439046>;

6. Barron’s Asia: “Rate Hikes More Likely; Gold’s Rise Less Likely”, Ryan Dezember, 2016, <http://www.barrons. com/articles/rate-hikes-more-likely-golds-rise-less-likely-1477111167>;

7. Market Watch: “Gold ends near post-Brexit vote low as dollar rallies”, 2016, <http://www.marketwatch.com/story/gold-headed-for-5th-drop-in-6-days-as-dollar-firms-fed-watch-rolls-on-2016-10-04>;

8. The Wall Street Journal: “Yuan’s 6-Year Low Makes Markets Yawn”, Chelsey Dulaney, 2016, <http://www.wsj. bcom/articles/yuans-6-year-low-makes-markets-yawn-1477436804/>;

9. South China Morning Post: “Offshore yuan drops to six-year low even as central banker sought to sooth market’s concerns”, 2016, <http://www.scmp.com/business/article/2039882/central-bank-deputy-says-yuan-will-remain-broadly-stable-currency-continues>;

10. FXStreet: “EUR/USD jumps toward 1.1000 on Clinton FBI probe”, Matias Salor, 2016, <https://www. fxstreet.com/news/eur-usd-jumps-toward-11000-on-clinton-fbi-probe-201610281808>;

11. Reuters: “Dollar off recent highs after FBI’s move on Clinton causes a stir”, 2016, <http://www.reuters. com/article/us-global-forex-idUSKBN12V021?il=0>;

12. Barron’s: “5 Reasons To Keep Buying Emerging Market Equities”, 2016, <http://blogs.barrons.com/emergingmarke tsdaily/2016/10/26/5-reasons-to-keep-buying-emerging-market-equities/>;

13. The New York Times: “Eurozone Economy Grows Steadily, Albeit Slowly. What Now?”, Jack Ewing, 2016, <http://www.nytimes.com/2016/11/01/business/international/europe-economy-gdp.html>;

14. The Post-Journal: “US Economy Growth in the third quater”, 2016, < http://www.post-journal.com /news/business /2016/10/us-economy-grows-in-the-third-quarter/ >;

15. CFO: “U.S. Economy Picks Up Steam in Third Quarter”, Mattew Heller, 2016, <http://ww2.cfo.com/the-economy/ 2016/10/u-s-economy-picks-steam-third-quarter/>;

16. Investment News: “Gold price drop put traders and investors at odds”, Jeff Benjamin, 2016, <http://www.investmentnews.com/article/20161018/FREE/161019926/golds-price-drop-puts-traders-and-investors-at-odds>.

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