By IFCMarkets
World stock indices fell on Thursday. The daily decline of S&P 500 by 2% appeared to be the largest in the last six months. It was facilitated for the most part by the statements of several regional Fed officials, regarding that the investors´ expectations of a possible rate hike are not realistic due to the US weak economy. Particularly, this is what was said by the head of the Federal Reserve Bank of St. Louis, James Bullard.
We also deem that there is no particular reason for the monetary policy tightening and rate growth, meanwhile the US inflation is low and the dollar is in demand all over the world. The Fed announcement did not cause a very deep downward retracement of the dollar index. Note that in the midterm the denial of an early rate hike in the United States can provide support for the stock market. On Wednesday S&P 500 showed the highest daily growth of 1.8% over the year just for this reason. The week in general has been very volatile, but obviously it will be closed lower.
The earnings season in the United States started not quite successfully. The aluminum producer Alcoa data disappointed investors and its quoted prices tumbled 4.4%. Today a number of companies will submit their reports, including PepsiCo and Family Dollar Stores Inc. Market participants expect the US total corporate income to rise 4.9% in January-September. The trading volume on the US stock exchanges was 14% higher than the 5-day average and reached 8.2 billion stocks. In general, the investor activity increased prominently in recent days. Many of them started to talk about the completion of the five-year uptrend and a possible significant retracement, due to the termination of Fed money issuing, or the so-called, QE3 program at the end of this month. Today at 12-30 СЕТ the US Import/Export Price indices are to be released: the forecast is moderately positive. Four regional Fed officials are expected to give their speeches at 13:00 СЕТ-19:00 СЕТ.
Negative data on the EU economy was another factor for the fallen world stock markets, in addition to the Fed negative statements and weak quarterly earnings reports in the United States. On Tuesday the IMF reduced the European economy growth forecast for this year from 1.1% to 0.8%, and in 2015 – from 1.5% to 1.3%. Stoxx 600 has slipped since the beginning of the week. It is the biggest downfall since this March, which is about 3.2%. The German exports in August slumped 5.8%, the largest decline since January 2009. This information appeared yesterday. Whereas, previously, the data on strong reduction in industrial output was released on Tuesday. We do not exclude the possibility that the German economy would still be affected by the sanctions imposed against Russia, a major trading partner. We point out to the risen euro this week. It was likely to happen because of the Finance Minister of Germany Wolfgang Schäuble’s objections considering the early start of euro issuing. This is what the ECB President Mario Draghi insisted on. No especially important economic data in the EU is expected today.
Nikkei is dipping for four consecutive days along with other global indices. The IMF reduced the growth forecast for the Japanese economy in 2014, more than for other countries: from 1.6% to 0.9%, and in 2015 – from 1.1% to 0.8%. Moreover, the fallen today Consumer Confidence index in September outperformed the forecasts. The stock exchanges in Japan do not work on Monday due to the holiday. Note that the Japanese government bonds and stocks have dropped this week. According to the Japanese Ministry of Finance weekly data, the main sellers were foreign investors. Their sale-off was the highest in two months. The yen strengthened significantly this week, for the first time since August. In our opinion, not Japanese, but the world trends of the US dollar weakening contributed to the yen growth, due to the fact that the Fed is being reluctant to raise rates.
As expected, world oil price continues to fall. We have previously marked that this trend is consistent with the anti-Russian economic sanctions. Russia supplies more than 20% of the world oil exports and over 10% of the global production. The OPEC members started to discuss the possible reduction in oil production at the meeting on November 27. The oil price of the so-called “OPEC basket” declined 20% since the mid-June.
As we assumed in the previous overviews, grain futures went on rising. The weekly increase of corn prices may become the highest over the year and a half. However, futures are slipping now slightly in anticipation of new crop estimates by the USDA. Its report for October is to be released today at 18-00 СЕТ. According to the farmers’ expectations, the USDA can raise the forecasts, compared to its own September estimate.
Market Analysis provided by IFCMarkets