Trichet’s last act

A weak close in the US on Friday capped another volatile week for global markets. Sentiment remains extremely gloomy despite another week when hard economic data was generally better than market expectations. Examples included Q2 GDP durable goods orders in the US and unemployment data in Germany. Renewed fears of a Chinese hard landing have added to the sense of malaise in the US and Europe. Concerns in China over informal lending and a credit crunch facing small businesses have been especially acute. According to Societe Generale research, short-selling turnover in Hong Kong is the highest since 1998.

Meanwhile, the German parliament approved the amended EFSF (European Financial Stability Facility) and Greece passed further austerity measures. CalculatedRiskBlog sums up the European situation particularly well: “As usual the story keeps changing out of Europe. Will there be a leveraged EFSF? Will there be forced bank recapitalization like with TARP in the U.S.? Will the EFSF be expanded or enhanced in some other way? Will the haircuts on Greek debt be increased (some say 50%)? Europe appears to have the resources to resolve the crisis, but they lack the mechanisms and the political unity. The clock is ticking.”

Market update

*except for currency performance

The week ahead is busy for central bank announcements. The Bank of England (Wed), ECB (Thur) and Bank of Japan (Fri) will announce rate decisions. This will be Jean-Claude Trichet’s last meeting as ECB president before handing over to Mario Draghi. Some further measures to ease liquidity in the European banking system are expected (12-month loans may be reintroduced) but economists are split on whether Trichet will cut rates as a final act of his presidency. In the UK, there is a slim chance that further QE will be announced by the Bank of England, although most economists expect this to come in November, concurrent with the quarterly inflation report. While the Federal Reserve does not meet this week, Chairman Bernanke will testify to Congress’s Joint Economic Committee on Tuesday at 3pm BST.

Europe’s finance ministers meet today but no vote on Greece’s next disbursement is expected for a couple of weeks.

On the macro data front, it is a very busy week. Manufacturing PMI was generally in line with expectations in Europe, and slightly ahead in China and the UK this morning. The key US ISM manufacturing report is released at 3pm BST today along with US vehicle sales this evening. The US non-manufacturing ISM is released on Wednesday, followed by weekly jobless claims on Thursday and the employment report on Friday. European services PMI is released on Wednesday and German industrial production on Friday.

Brighter note:

On a brighter note, southern parts of the UK registered record breaking temperatures for October. Despite the heat, Ashburton entered two relay teams in the Jersey marathon on Sunday, completing the race in times of 3hrs 11m and 3hrs 36m and in doing so, helped raise thousands of pounds for a variety of well deserving charities.