Europe
Shares in Europe rebounded modestly off yearly lows today when last week’s downside momentum ran out of steam thanks to the Federal Reserve and Bank of England hinting at later rate hikes and positive trade data from China.
Governor Carney in an interview at the IMF suggested weakening growth in the Eurozone would influence policy at the Bank of England. Carney’s comments infer that domestic inflation, wage and unemployment data may be slower to reach targets thanks to slowing growth in the Eurozone and perhaps pushes back the timing of the first UK rate hike to Q2 of next year.
UK stocks benefitted from the more dovish Mark Carney but the British pound remained more stable thanks to matching comments from Fed officials regarding the US economy that weakened the US dollar.
In China, exports jumped by 15.3% ahead of the 12% increase expected, while imports unexpectedly moved higher despite forecasts of a 2% drop. With money supply data and CPI out later in the week, the data offered some hope that China won’t add to the global growth concerns stoked up recently by Germany.
The Bank of Italy has forecasted that Italian Q3 GDP contracted justifying a delay in Italy’s balanced budget target. Italy is Europe’s third largest so with it in a triple dip and Germany struggling; the weight of evidence is stacking up that the whole Eurozone is heading back into recession.
There is a huge conflict at the heart of the ECB. The battle is ECB president Mario Draghi versus German Bundesbank president Jens Weidmann. Draghi wishes to push forward with asset purchases, first ABS then perhaps full QE of government bonds like in the US to help spur inflation and push rates lower. Weidmann is of the view that the ECB buying government bonds means the ECB is financing governments which is not legal - it would also remove the incentive for governments to reform
The lack of certainty surrounding central bank support in Europe means European stocks don't have the kind of floor underneath them that seems to exist for US stocks and goes a long way to explain their underperformance.
US
After only a small pop at the open, US stocks were starting to rollover in early trading with the S&P 500 hitting its lowest levels since May on the Columbus Day holiday.
US stock markets are open for trade on Monday, but bond markets are closed for the Columbus Day holiday. This reportedly means an average drop in stock trading volumes of around 20% which may mean a choppy directionless market with big earnings reports expected tomorrow.
Fed officials including Deputy Governor Stanley Fischer have indicated the FOMC may slow tightening if world growth continues to deteriorate. It would be of some consolation that Fed officials in the past few days have been warning that slowing world growth could delay rate hikes but investors main concern right now is earnings, so more talk of slowing growth just fuels fears over the impact it may have had over earnings in Q3.
FX
The US dollar was mostly weaker today thanks to comments from Fed officials over the pace of tightening in the face of slowing global growth.
The Bank of Russia has intervened to the tune of $6bn in the last 10 days to prop up the falling ruble to little effect. USD/RUB is still trading north of 40.
AUD/USD successfully tested its 2014 lows around 0.8650 for a third time with a more neutral RBA policy contrasting with a fast back-tracking hawkishness from the Federal Reserve.
Commodities
Iraq has cut its November oil prices for customers in Asia and Europe. This follows a similar move by first Saudi Arabia, then Iran. OPEC producers are competing for market share in the face of weaker global oil demand and prices, in turn prices are going down further with Brent Oil now hovering just above $88
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