Market whiplash Global Markets

Market whiplash
By Anne D. Picker, Chief Economist
produced by
Global Markets
Equities gyrated from day to day last week. Despite headwinds, all indexes except the Shanghai
Composite were up on the week. Investors were concerned with a variety of events. Earnings
season with its deluge of reports last week mollified investors who were fretting about slower
growth in China, a health check on the Eurozone’s flailing economic growth via the flash PMIs
and concerns about the impact of Ebola on world growth. Wednesday’s terrorist attack in Ottawa,
Canada had only a momentary impact on U.S. and Canadian indexes.
Flash PMIs were ‘mixed’
According to the flash PMI surveys,
economic activity in the Eurozone is
expanding slightly more quickly
than expected this month. The
composite output index weighed in
at 52.2, up a couple of ticks from its
final September reading (a 10month low) and indicative of a
gentle pick-up in the pace of
expansion for the first time in three
months. Regionally within the core
group of Eurozone countries, a mild
acceleration in growth in Germany
(composite output index up 0.2
points at 54.3) contrasted with a
faster pace of decline in France (down 0.4 points at 48.0). Elsewhere, output growth partially
recovered from last month's drop but new business, employment and output price inflation were
all soft.
While the three Eurozone PMIs contain services and a composite reading, elsewhere the flash is
only for manufacturing. In the Eurozone, the manufacturing component edged up to 50.7 from
50.3 last month. In Germany, the manufacturing PMI improved to 51.8 from 49.9 in September.
However, France sank further into contraction with a reading of 47.3, down from 48.8.
Manufacturing PMIs in Japan and China also improved in October. China’s manufacturing PMI
inched up to 50.4 from September’s final of 50.2 while in Japan, the index reading was 52.8, up
from 50.3. However, the U.S. index eased to 56.2 from 57.5.
1
Global Stock Market Recap
Index
2013
31-Dec
2014
Oct 17
Oct 24
% Change
Week
2014
Asia/Pacific
Australia
Japan
Hong Kong
S. Korea
Singapore
China
All Ordinaries
Nikkei 225
Hang Seng
Kospi
STI
Shanghai Composite
5353.1
16291.3
23306.4
2011.3
3167.4
2116.0
5260.1
14532.5
23023.2
1900.7
3167.7
2341.2
5399.3
15291.6
23302.2
1925.7
3222.6
2302.3
2.6%
5.2%
1.2%
1.3%
1.7%
-1.7%
0.9%
-6.1%
0.0%
-4.3%
1.7%
8.8%
India
Indonesia
Malaysia
Philippines
Taiwan
Thailand
Sensex 30
Jakarta Composite
KLCI
PSEi
Taiex
SET
21170.7
4274.2
1867.0
5889.8
8611.5
1298.7
26108.5
5029.0
1788.3
7003.2
8512.9
1528.7
26851.1
5073.1
1818.9
7103.55
8646.0
1539.9
2.8%
0.9%
1.7%
1.4%
1.6%
0.7%
26.8%
18.7%
-2.6%
20.6%
0.4%
18.6%
Europe
UK
France
Germany
Italy
Spain
Sweden
Switzerland
FTSE 100
CAC
XETRA DAX
FTSE MIB
IBEX 35
OMX Stockholm 30
SMI
6749.1
4296.0
9552.2
18967.7
9916.7
1333.0
8203.0
6310.3
4033.2
8850.3
18701.0
9956.8
1310.5
8250.1
6388.7
4128.9
8987.8
19495.7
10339.3
1358.6
8532.1
1.2%
2.4%
1.6%
4.2%
3.8%
3.7%
3.4%
-5.3%
-3.9%
-5.9%
2.8%
4.3%
1.9%
4.0%
Dow
NASDAQ
S&P 500
S&P/TSX Comp.
Bolsa
16576.7
4176.6
1848.4
13621.6
42727.1
16380.4
4258.4
1886.8
14227.7
43273.5
16805.4
4483.7
1964.6
14543.8
43665.5
2.6%
5.3%
4.1%
2.2%
0.9%
1.4%
7.4%
6.3%
6.8%
2.2%
North America
United States
Canada
Mexico
2
United States
Both the S&P and Nasdaq posted
their biggest weekly gains in more
than a year as investors became
more confident about the health of
the U.S. economy. Better than
expected
corporate
earnings
helped drive strong rallies on
Thursday and Friday. On the week,
the Dow was up 2.6 percent, the
S&P jumped 4.1 percent and the
Nasdaq soared 5.3 percent. This is
the first weekly increase for the
three indexes since the week
ending September 19. There had
been a lot of pessimism in the
market but it is being dissipated by corporate earnings.
Economic data were mixed — existing home sales advanced as did FHFA house prices and the
consumer price index. Initial claims weekly claims were up but the four week moving average is
at its lowest since 2000. New home sales were up but only because of sizable downward
revisions to the prior three months.
3
Europe
Equities advanced despite volatile
trading during the week. For the
FTSE, CAC and SMI, it was the
first positive week since the week
th
ending September 19 . The FTSE
was up 1.2 percent, the CAC
gained 2.4 percent, the DAX added
1.6 percent and the SMI jumped
3.4 percent. The Italian MIB and
Spanish IBEX were up 4.2 percent
and 3.8 percent respectively. The
FTSE’s weekly gain was the
strongest since the week of August
nd
22 . Equities rallied intermittently
during the week amid speculation
that the European Central Bank
will offer fresh stimulus. This outweighed some disappointing earnings reports. In the past four
weeks, European stocks led a rout that helped erase as much as $5.5 trillion from equities
worldwide amid concern that a potential recession in the region would undermine growth as the
Federal Reserve winds down its asset-purchase program.
The week ended on a sour note Friday however after a draft statement reportedly showed more
than two dozen banks will fail the European Central Bank's stress test. The results of the ECB's
check-up on banks will be made official Sunday. More than a hundred are said to have passed
the test, while 25 banks are said to fall short of ECB standards. On Sunday, scorecards for
around 150 lenders are scheduled to be made public in a series of announcements in London,
Frankfurt and other financial capitals across the continent. They are designed to show how strong
balance sheets are and how capable banks are of surviving a deteriorating economic
environment.
4
Asia Pacific
Equities advanced on the week with
the exception of the Shanghai
Composite (down 1.7 percent) in a
volatile week of trading. Gains
ranged from 5.2 percent (Nikkei)
down to 0.7 percent (SET).
Investors weighed the latest spate
of Chinese economic data and
found
validation
for
their
expectations of slower growth. Third
quarter gross domestic product was
up 7.3 percent from a year ago after
increasing 7.5 percent in the
second
quarter.
September
industrial production was a touch
higher than expectations but retail sales were lower. A report Friday showed new home prices in
China declined for the first time in nearly two years in September, declining 1.1 percent from a
year earlier after rising 0.5 percent in August.
The Nikkei snapped a four week losing streak as the U.S. dollar regained some strength against
the yen and recent global volatility eased. However, it was a volatile week for the index. The
Nikkei jumped 4.0 percent on Monday only to dive 2.0 percent on Tuesday. It rebounded 2.6
percent Wednesday but slumped a modest 0.4 percent Thursday. It ended the week with a 1.0
percent gain. Much of the volatility stemmed from the value of the yen against the U.S. dollar with
exporters reacting to the relative changes between the two currencies. The market also rallied on
news that Japan’s Government Pension Investment Fund, the world’s largest public pension fund
with some $1.21 trillion in assets, is working on raising its portfolio allocation devoted to domestic
stocks to around 25 percent. There was a scramble to cover short positions, pushing shares
higher.
The Sensex rallied 2.8 percent in a holiday shortened week. The index was up sharply Monday
after the government announced deregulation of diesel prices and increased natural gas prices, a
move that will help the government reduce its subsidy burden. A strong showing of the Bharatiya
Janata Party in the Maharashtra and Haryana Assembly elections also bolstered hopes that
Prime Minister Narendra Modi’s government will step up the pace of economic reforms.
5
Currencies
The U.S. dollar was up against the
euro, yen and Swiss franc. It was
unchanged against the pound
sterling. The currency retreated
against the commodity currencies
— the Canadian and Australian
dollar. The Canadian currency was
little affected by Wednesday’s
terrorist attack in Ottawa. The yen
halted a six day drop against the
dollar after a doctor tested positive
for the disease in New York,
boosting haven demand. The euro
rallied Friday as a draft report
indicated four of five euro area
banks are set to pass a European
Central Bank stress test.
However, the dollar pared its weekly gain on concern the spread of the Ebola virus may weigh on
the economy before the Federal Reserve’s policy meeting. Analysts noted that currency traders
are positioning themselves before the FOMC meeting on October 28 and 29. The dollar
advanced against most of its peers this week after the September consumer price index
unexpectedly rose keeping the Federal Reserve’s 2 percent inflation target in sight. The six
month ascent of the U.S. dollar had stalled over the last two weeks, but has resumed in recent
days.
ECB President Mario Draghi has not disguised that he is readying more stimulus for an enfeebled
Eurozone economy. That prospect has helped drag the euro down from the $1.40 level it was
toying with in early March. European companies are already feeling the benefit. A potentially
significant headwind to the U.S. dollar sustaining its move higher is that the Federal Reserve —
which acknowledged that growth outside the U.S. has deteriorated — pushes back an interest
rate increase because of the strength of the currency.
6
Bank of Canada
As widely anticipated, the Bank of
Canada left its overnight rate at
1.0 percent, halfway between the
similarly unchanged deposit rate
(0.75 percent) and Bank Rate
(1.25 percent). However, the BoC
dropped its explicit neutral policy
bias which had tied the timing and
direction of the next shift in the
monetary
stance
to
future
economic developments. Rather,
the new statement simply points
out that economic activity remains
heavily dependent upon monetary
policy stimulus. If anything, this
hints of a slightly more dovish bias
than last time although risks to the official inflation forecast are seen as balanced.
As the new Monetary Policy Report made clear, the decision reflects the BoC's creeping
concerns about the way in which the local economy has evolved since its last meeting in
September. In particular, the central bank acknowledges that downside risks to domestic growth
have increased in the wake of economic and geopolitical events overseas. Despite its recent
acceleration, inflation is still not viewed as a problem with full capacity not expected to be reached
until the second half of 2016. Governor Stephen Poloz’s testimony before the Senate Committee
on Banking, Trade and Commerce was cancelled due to the terrorist incidents in downtown
Ottawa on Wednesday morning. It has now been rescheduled for October 29.
Selected currencies — weekly results
2013
Dec 31
U.S. $ per currency
Australia
New Zealand
Canada
Eurozone
UK
Currency per U.S. $
China
Hong Kong
India
Japan
Malaysia
Singapore
South Korea
Taiwan
Thailand
Switzerland
*Pegged to U.S. dollar
Source: Bloomberg
A$
NZ$
C$
euro (€)
pound sterling (£)
yuan
HK$*
rupee
yen
ringgit
Singapore $
won
Taiwan $
baht
Swiss franc
2014
Oct 17
Oct 24
% Change
Week
2014
0.893
0.823
0.942
1.376
1.656
0.876
0.793
0.887
1.276
1.609
0.880
0.785
0.890
1.267
1.609
0.4%
-1.0%
0.4%
-0.7%
0.0%
-1.4%
-4.6%
-5.4%
-7.9%
-2.9%
6.054
7.754
61.800
105.310
3.276
1.262
1049.800
29.807
32.720
0.892
6.125
7.758
61.443
106.920
3.274
1.275
1065.800
30.401
32.432
0.946
6.117
7.758
61.281
108.110
3.278
1.275
1057.500
30.404
32.410
0.952
0.1%
0.0%
0.3%
-1.1%
-0.1%
0.0%
0.8%
0.0%
0.1%
-0.6%
-1.0%
0.0%
0.8%
-2.6%
-0.1%
-1.1%
-0.7%
-2.0%
1.0%
-6.3%
7
Indicator scoreboard
Europe
United Kingdom
Third quarter preliminary gross
domestic product was up 0.7
percent on the quarter following an
unrevised 0.9 percent increase in
the second quarter. Annual growth
was 3.0 percent, down from 3.2
percent in the second quarter. The
level of real GDP was 3.4 percent
above its pre-recession peak in the
first quarter of 2008. As usual, the
preliminary estimates are based on
output data and the key GDP
expenditure components will not
be available for another month.
The relatively mild deceleration in
quarterly growth was wholly attributable to a slowdown in services which posted a 0.7 percent
rate, some 0.4 percentage points short of its pace in the second quarter. This reflected mainly
weaker rates in distribution, hotels & restaurants (0.5 percent after 1.0 percent), business
services & finance (1.0 percent after 1.5 percent) and transport, storage & communication (1.1
percent after 1.5 percent). Government was steady at 0.3 percent. Elsewhere output accelerated.
Production industries were up 0.5 percent after a 0.2 percent increase last time (although
manufacturing rose only 0.4 percent after 0.5 percent), construction gained 0.8 percent after 0.7
percent and agriculture was 0.3 percent better off having previously contracted 0.3 percent.
Asia Pacific
Japan
September’s merchandise trade
deficit was ¥958.3 billion, wider
than August’s revised deficit of
¥949.7 billion. Expectations were
for the deficit to narrow to ¥760.6
billion. Exports were up 6.7 percent
on the year while imports were 6.3
percent higher. Both rebounded
from negative readings in August.
Exports to China were up 8.8
percent on the year while those to
Asia as a whole were up 8.1
percent. Exports to the EU were up
0.7 percent on the year and to the
U.S. were 4.4 percent higher on
the year. On a seasonally adjusted basis, the trade deficit ballooned to ¥1.070.1 billion from
¥912.4 billion in August. Exports were up 3.1 percent on the month while imports added 5.0
percent.
8
Asia Pacific ex Japan
Australia
Third quarter consumer prices
were up 0.5 percent on the month
for the second consecutive
quarter. On the year, the CPI
eased to an increase of 2.3
percent after climbing 3.0 percent
in the second quarter. Second
quarter inflation was also up 0.5
percent on the quarter but jumped
3.0 percent from the previous year.
The Reserve Bank of Australia’s
inflation target range is 1 percent
to 3 percent and the latest reading
is close to the range mid-point.
The RBA’s preferred measures –
the trimmed and weighted means — showed higher rates of inflation. The trimmed mean was up
0.4 percent on the quarter and 2.5 percent on the year – lower than the second quarter readings
of 0.7 percent on the quarter and 2.8 percent from a year ago. The weighted mean was up 0.6
percent and 2.6 percent, virtually the same as in the second quarter.
China
Third quarter gross domestic
product was up 7.3 percent from
the same quarter a year ago after
increasing 7.5 percent in the
second quarter. It was the weakest
growth since the first quarter of
2009. On the quarter, GDP was up
1.9 percent. For the nine months
through September, GDP was up
7.4 percent from a year ago. For
the year to date, consumption
accounted for 48.5 percent of GDP
growth.
9
September industrial production
grew 8 percent on the year after
increasing only 6.9 percent in
August, which was its lowest since
2008. On the month output was up
0.91 percent after increasing a
monthly 0.22 percent in August.
For the nine months through
September, output was up 8.5
percent from a year ago. During
the same months in 2013, output
was up 9.6 percent on the year.
Output improved in 7 of 13
subcategories on the year in
September. Auto output was up
4.5 percent after increasing 3.1 percent in August. Communication improved to 16.6 percent from
9.6 percent the month before. Chemicals were up 10.4 percent after 8.9 percent. Machinery was
up 9.5 percent after slipping to an increase of 8.3 percent in August. However, output was lower
for textiles (5.3 percent after 5.7 percent the month before), non-metal minerals (8.4 percent after
8.9 percent). Transport equipment output was up 9.7 percent in September after increasing 16.1
percent in August.
September retail sales were up
11.6 percent on the year after
increasing 11.9 percent in August.
For the month of September, retail
sales were up 0.85 percent after
increasing 0.89 percent the month
before. For the nine months
through September, sales were up
12.0 percent compared with an
increase of 12.9 percent for the
same months in 2013. Urban sales
eased to an increase of 11.4
percent from 11.8 percent in
August. Rural sales were up 12.5
percent after 12.8 percent in
August. Sales improved in September for stationery, household nondurables, autos and gold,
silver & jewelry. However sales were lower than August for clothing, home appliances, cosmetics,
furniture, building & decoration materials, communications equipment and oil & oil products.
10
Americas and Canada
United States
September existing home sales
were up 2.4 percent to an
annualized rate of 5.17 million. On
the year, however, sales were
down 1.7 percent. Condo sales
were the strongest in the month,
up 5.2 percent to a 0.610 million
rate while sales of single family
homes were up 2.0 percent to a
4.56 million rate. On the year,
condo sales show no change with
single-family homes down 1.9
percent. The strength in sales
moved supply off the market, to a
total of 2.30 million homes and
condos on the market compared with 2.31 million in the prior month. Supply relative to sales
declined to 5.3 months from 5.5 months in August. Home prices were down 4.0 percent on the
month to a median $209,700. The median price was up 5.6 percent on the year. Sales in the
West were up 7.1 percent, up 5.0 percent in the South and up 1.5 percent in the Northeast.
However, sales in the Midwest were down 5.6 percent.
September unadjusted consumer
price index edged up 0.1 percent
and was up 1.7 percent from the
same month a year ago. Excluding
food and energy, core CPI also
was up 0.1 percent and 1.7
percent on the year. Energy prices
declined 0.7 percent after sinking
2.6 percent in August. Gasoline
prices were down 1.0 percent after
dropping 4.1 percent the month
before. Food prices were up 0.3
percent after increasing 0.2
percent.
11
Initial jobless claims for the October
18 week were up 17,000 to
283,000. The prior week, revised
only 2,000 higher to 266,000, was
a 14-year low. The latest 4-week
average was also at a 14-year low,
down 3,000 to 281,000. Continuing
claims for the October 11 week
declined 38,000 to 2.351 million
which is another 14-year low, as is
the 4-week average, down 23,000
to
2.381
million.
The
unemployment rate for insured
workers was steady at a recovery
low of 1.8 percent.
Bottom line
Equities rebounded from the previous week’s losses even though trading was volatile. Positive
earnings data helped buoy investors. The Bank of Canada kept its monetary policy interest rate at
1.0 percent again. Minutes from both the Reserve Bank of Australia and Bank of England held no
surprises.
The last week of the month is always a busy one on the economic data front. Prominently, Japan
releases its monthly major indicators. And the earnings flow will continue unabated. The Bank of
Japan and the Reserve Bank of New Zealand meet. But all eyes will be on the FOMC
announcement during the Wednesday global market day.
12
Looking Ahead: October 27 through October 31, 2014
Central Bank activities
October 29
United States
October 30
New Zealand
October 31
Japan
FOMC Announcement
Reserve Bank of New Zealand Monetary Policy Announcement
Bank of Japan Monetary Policy Announcement
The following indicators will be released this
week...
Europe
October 27
Eurozone
M3 Money Supply (September)
October 30
Eurozone
EC Business and Consumer Confidence (October)
Germany
Unemployment (October)
Spain
Gross Domestic Product (Q3.2014 preliminary)
October 31
Eurozone
Harmonized Index of Consumer Prices (October, flash)
Unemployment (September)
France
Consumption of Manufactured Goods (September)
Producer Price Index (September)
Asia/Pacific
October 28
October 29
October 31
Japan
Japan
Japan
Australia
Americas
October 28
United States
October 29
October 30
Canada
United States
October 31
Canada
United States
Retail Sales (September)
Industrial Production (September)
Consumer Price Index (September)
Household Spending (September)
Unemployment (September)
Producer Price Index (Q3.2014)
Durable Goods Orders (September)
Consumer Confidence (October)
Industrial Product Price Index (September)
Initial Unemployment Claims (week ending prior Saturday)
Gross Domestic Product (Q3.2014 first estimate)
Monthly Gross Domestic Product (August)
Personal Income and Spending (September)
Chicago PMI (October)
Consumer Sentiment (October)
Anne D Picker is Econoday’s chief economist and the author of
International Economic Indicators and Central Banks.
13
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