Saturday, 25 October 2014

Markets mixed, UK economy decelerates, US and Chinese home prices fall

Markets were mixed on Friday. The S&P 500 rose 0.7 percent to extend its gain for the week to 4.1 percent, the best since January 2013. However, the STOXX Europe 600 fell 0.3 percent to trim its weekly gain to 2.7 percent, still the best this year.

Economic data on Friday were also mixed.

The UK economy decelerated in the third quarter, growing by 0.7 percent compared with 0.9 percent in the second quarter. The services industry grew 0.7 percent in the third quarter, down from 1.1 percent in the previous quarter, while manufacturing output grew 0.4 percent, down from 0.5 percent.

In the US, new home sales rose 0.2 percent in September but data for prior months were revised down. The median sales prices fell 4 percent in September from a year ago, the first decline since April and the largest since January 2012.

Chinese home prices also fell in September. Prices fell month-on-month in a record 69 of 70 major cities monitored by the government, up from 68 in August. As a result, average home prices were down 1.3 percent in September from a year earlier, the first such drop since November 2012.

In Germany, though, GfK reported that its consumer sentiment indicator rose to 8.5 going into November from 8.4 in October.

Friday, 24 October 2014

Markets rally amid positive economic data

Markets resumed their rally on Thursday. The S&P 500 rose 1.2 percent and the STOXX Europe 600 rose 0.7 percent.

The US 10-year Treasury yield rose six basis points to 2.27 percent. Oil and copper also rose.

Positive economic data on Thursday helped boost markets.

In the US, Markit's preliminary manufacturing PMI for October showed a fall to 56.2 in from 57.5 in September but remained well in expansion territory while the Chicago Federal Reserve's national activity index jumped to +0.47 in September from -0.25 in August.

US economic growth is likely to be maintained after the Conference Board's US index of leading indicators rose 0.8 percent in September.

Economic data for the euro area on Thursday were also positive. Markit's preliminary composite PMI for the region for October showed a rise to 52.2 from 52.0 in September, with the manufacturing PMI rising to 50.7 from 50.3 and the services PMI remaining unchanged at 52.4. The European Commission's consumer confidence index for the euro area rose 0.3 points to -11.1 in October.

In China, HSBC's preliminary manufacturing PMI for October showed a rise to 50.4 from 50.2 in September.

In Japan, the Markit/JMMA flash manufacturing PMI for October showed a rise to 52.8 in October from 51.7 in September.

Unusually, the UK provided the weakest economic data among the major economies on Thursday. Retail sales fell 0.3 percent in September while mortgage approvals fell to 39,271 from 41,361 in August.

Thursday, 23 October 2014

Stocks mixed as US inflation stays muted, Japan's trade deficit widens

Stocks were mixed on Wednesday. The S&P 500 fell 0.7 percent but the STOXX Europe 600 rose 0.7 percent.

Helping to boost markets on Wednesday were continued reports of the European Central Bank buying bonds, this time Spanish covered bonds, after reportedly having bought French and Portuguese securities earlier this week.

The Federal Reserve may also be able to continue to support markets with monetary stimulus after US consumer prices rose just 0.1 percent in September.

Meanwhile, though, the Bank of Japan's monetary policy has apparently helped push down the yen without helping Japan's trade balance. Japan's trade deficit rose 1.6 percent in September from the previous year. While exports rose 6.9 percent, imports also rose by 6.2 percent.

Wednesday, 22 October 2014

Stocks jump as investors see central bank support

Stocks rose on Tuesday. The S&P 500 jumped 2.0 percent while the STOXX Europe 600 surged 2.1 percent.

Stocks rose amid reports that the European Central Bank is considering buying corporate bonds on the secondary market beginning early next year.

Also boosting markets was a report that US existing home sales rose 2.4 percent to the highest level in a year.

Nevertheless, many think that central bank actions -- or at least words -- remain key to market direction. From Bloomberg on Tuesday:

The central-bank put lives on.

Policy makers deny its existence, yet investors still reckon that whenever stocks and other risk assets take a tumble, the authorities will be there with calming words or economic stimulus to ensure the losses are limited...

Last week as markets swooned again, it was St. Louis Federal Reserve President James Bullard and Bank of England Chief Economist Andrew Haldane who did the trick. Bullard said the Fed should consider delaying the end of its bond-purchase program to halt a decline in inflation expectations, while Haldane said he’s less likely to vote for a U.K. rate increase than three months ago.

But some think that it takes more than mere words to hold up markets.

Matt King, global head of credit strategy at Citigroup Inc., and colleagues have put a price on how much liquidity central banks need to provide each quarter to stop markets from sliding.

By estimating that zero stimulus would be consistent with a 10 percent quarterly drop in equities, they calculate it takes around $200 billion from central banks each quarter to keep markets from selling off.

There may be good news though for stocks.

The good news for investors in the eyes of Citigroup is that although the Fed is still reversing and set to end its bond-buying this month, the European Central Bank and Bank of Japan will more than compensate with more stimulus in coming months.

Tuesday, 21 October 2014

Stocks mixed, China's growth slowest since 2009

Stocks were mixed on Monday. The STOXX Europe 600 fell 0.5 percent but the S&P 500 rose 0.9 percent to help push the MSCI All-Country World Index up 0.7 percent.

Tuesday saw China report that its economy grew 7.3 percent in the third quarter from the previous year, down from 7.5 percent in the previous quarter and, indeed, the slowest pace since the first quarter of 2009 in the midst of the global financial crisis.

For September data, industrial production rose 8 percent from the previous year, rebounding from a more than five year low of 6.9 percent in August. Retail sales rose 11.6 percent while fixed asset investment rose 16.1 percent in the first nine months of the year when compared to the same period last year.

Monday, 20 October 2014

Stocks could fall another 50 percent or more

Do stocks have much further to fall? The Wall Street Journal's Brett Arends asks that question.

Despite Friday’s boomlet, the Dow Jones Industrial Average still closed the week down 1%, and the broader S&P 500-stock index ended also down 1%. The Dow and the S&P are down 5.2% and 6.2%, respectively, from their record highs...

Overall, the MSCI World index has fallen 10% in just a few short weeks, after hitting a record on Sept. 2...

So how much further might the market fall?

If this is merely a regular correction in the course of a regular economic expansion, the answer may be: Not much further.

Corrections of 5% to 20% are a normal part of the stock market...

Still, there are reasons for concern based on trends prevailing even before the recent turmoil.

If the global economy were turning upward, the prices of industrial commodities, such as copper and oil, would typically have been rising. Instead they were falling.

Meanwhile, if the future were rosy, long-term interest rates, a barometer of economic growth, would have been expected to go up. Instead, they have been tumbling. (The yield on 30-year Treasury bonds dipped below 3% amid last week’s market turmoil, and yields on the benchmark 10-year note were at mid-2013 levels.)

And some analysts have become quite bearish.

While the majority of big names on Wall Street still officially see the market ending the year higher, unofficially more and more are wondering if the long-awaited correction is at hand...

To these critics, stock prices could easily fall 50% from current levels, and could conceivably fare even worse...

The gloomiest prognosticator, Scottish stock-market historian and analyst Russell Napier, suggests that Wall Street might yet fall by 75% or more before the carnage is over.