It’s not been a good month, or week for that matter, for European equity markets, with the FTSE100 alone down over 400 points so far in the last two weeks, which is more than the entire trading range of the last three months.
As far as UK markets are concerned we appear to have stabilised well above the lows of the year, unlike the German DAX which fell to its lowest levels since the end of December 2016 yesterday before rebounding.
We have seen a semblance of stabilisation in Asia overnight, helped by some position squaring and profit taking ahead of the weekend, as well as the start of US earnings season later today.
Today’s rebound appears to offering a brief respite for investors at what has been an absolute shocker of a week, and while today’s respite is welcome it remains to be seen whether we’ve seen the bottom in the short term. The beginning of US earnings season later today could well offer clues with particular attention likely to be on company’s forward projections for profit and revenue guidance.
A weaker than expected US CPI number for September may well have also tempered concerns about the path for US interest rates, after it came in weaker than expected at 2.3%, down from 2.7% in August, which has seen US treasury yields slip back from their intraweek peaks.
The rebound seen in Asia overnight has helped prompt a positive European open this morning and in turn this is likely to prompt a strong open for US markets, after an absolute shocker of a week. At one point this week the Dow was down over 1,300 points and the S&P500 over 170 points.
The latest China trade numbers showed that exports rose 14.5% in September, up from 9.8% in August with yet another record surplus with the US of $225.8bn, which shows that the current tariffs are having very little effect in narrowing the trade gap. Having said that the 10% tariffs on $200bn worth of goods implemented in September, only came into effect towards the end of the month.
Imports were more disappointing, rising 14.3%, down from 20% in August, which suggest that internal demand within the Chinese economy may be slowing, after a big jump in July, though it is noticeable that imports have been similarly weak at the end of every quarter this year.
The rise in the surplus with the US is only likely to make President Trump even more determined to impose his will in terms of addressing the rising US trade deficit with China in the coming weeks, which means the prospect of tariffs on the remainder of Chinese goods remains a clear and present danger.
On the earnings front we’re going to get a look at the latest Q3 updates for JP Morgan Chase, Citigroup and Wells Fargo Bank and these will give us a decent window into not only how well the US economy has been performing. Consumer spending appears to be holding up well and the US central bank has raised rates for the third time this year. M&A activity has also held up as well which should mean decent fee income.
On the downside housing does appear to be showing signs of slowing, which could weigh more on Wells Fargo, given its reliance on the US mortgage market. Furthermore the flattening yield curve could weigh on banks profitability in other areas, while recent market volatility, or the lack of it in the last three months, could also offer up some disappointment when it comes to trading revenues. Guidance will be key here in light of recent warnings about trade and a global slowdown.
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