Former Army captain Jair Bolsonaro went from being a fringe political candidate to Brazil’s new president in another populist move. In the biggest legislative turnover since democracy was restored in 1985, Brazilian voters also booted droves of incumbents out of Congress.
Markets have reacted well to the Conservative appointment, who has promised to crack down on corruption and restore fiscal control. However, critics are concerned about his outbursts against women and minorities and his nostalgia for military dictatorships.
House purchase mortgage approvals fell to 65.3K in September, from 66.1K in August, but exceeded the consensus, 64.7K. Net consumer credit rose by just £0.8bn in September, well below the average of the previous six months and the consensus, both £1.2bn. September’s money and credit data show that the recent increase in Bank Rate and rise in no-deal Brexit risk have made households more cautious. Unsecured borrowing in Q3 was £2bn lower than in Q2 and the lowest since Q3 2014.
The headline French consumer confidence index increased slightly to 95 in October from 94 in September. The small increase was driven by an improvement in households’ outlook for their standard of living, and reduced fears of unemployment. The former was probably driven by tax cuts which came into effect at the start of Q4, reversing tax increases in Q1. Elsewhere, the purchasing opportunity index fell trivially, but remains solid overall, while consumers’ perception of their personal financial situation was unchanged.
Personal income rose 0.2% in September, half the consensus. Spending rose in line with expectations. The core Personal Consumption Expenditure (PCE) deflator rose 0.2%, a tenth more than expected. The big surprise here is the 0.15% increase in the core PCE deflator, about double the rise implied by the September CPI. Almost half the core PCE overshoot was due to a 5.6% jump in airline fares -the CPI version rose only 1.0% -but the remainder of the difference reflects the sum of small differences in seasonality, weights and coverage of the two surveys.
The team remain happy with their positioning despite the recent volatility in markets. Although they will remain watchful of any further developments, at this point in time they see recent volatility as in line with history. 2017 was an extremely sedate year for markets however investors will now have to get used to markets going down as well as up.
Analysis shows that even in years with big drawdowns, markets end up being positive 70% of the time. The probability of a recovery falls if there is an increased likelihood of US recession but we do not currently see this on the horizon. US growth still remains strong and is likely to grow above 2.5% this year.
THREE ANNOUNCEMENTS DUE THIS WEEK
1 Nov – Markit / CIPS Manufacturing PMI // 1 Nov – MPC Meeting & Inflation Report // 2 Nov – Markit / CIPS Construction PMI
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