European market soft
• UK trade talks with China
• Canada election sends
• IBM revenues miss weighs on US market open
It was another soft start to European markets on Tuesday. Investors are climbing the wall of worry as major stock markets tentatively breach some of the price levels last seen in the August sell-off.
The FTSE 100
drifted from gains to losses early on Tuesday with investors evaluating the costs and benefits of any deals struck during trade talks between British PM David Cameron and China’s President Xi Jinping.
China is the home of a massive pool of centralised investment capital and Mr Cameron’s goal is to have as much of that as possible put to work in the UK. China-financed investment into UK infrastructure will create jobs and a better setting for UK companies to prosper. China, for its part wants a good deal on its investments but moreover will use the investments to increase the country’s power and influence in the UK.
The UK’s steel industry is potentially one of a number of big losers from closer ties with China. The risk is that the more China invests into the UK, the bigger the incentive for Mr Cameron’s government to tacitly permit anti-competitive behaviour such as subsidies for Chinese steel companies that enable them to sell below market prices, undercutting UK competition.
The winds of anti-austerity have blown from Europe across the Atlantic to Canada. The election victory of Justin Trudeau’s Liberal Party is swipe against the policy of austerity imposed by former PM Stephen Harper’s Conservatives.
The Canadian election contrasts with the UK general election where the British people voted to increase the mandate of the Conservatives and their policy of austerity. The key difference is that while the UK economy has prospered in the past year, the steep drop in oil prices has sent the Canadian economy into recession.
After 10 years of the same government, Canadians voted for an alternative approach to the one that oversaw the Canadian economy fall into contraction for the past five months. The election brought about a fall in the Canadian dollar as markets feared deficit spending under the Liberal party would lead to higher debt and taxes.
Disillusion following a number of poor earnings reports from America’s blue chip companies is setting US markets up for a lower open on Tuesday. IBM announced a fall in revenue of -13.9% afterhours, missing forecasts and lowering guidance for the year. Big Blue’s core IT infrastructure business continues to sag as companies’ computing needs shift to the cloud.
USA pre-opening levels
S&P 500: 6 points lower at 2,027
Dow Jones: 76 points lower at 17,154
Nasdaq 100: 13 point lower at 4,449
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