Top Global Market Movers - Week Ending October 25, 2013

October 28th, 2013
in contributors

by Cliff Wachtel, FX Empire

A quick review of top market drivers each day and lessons suggested: Fed policy looser, PBOC tighter, real bank stress tests for EZ, earnings also at times sometimes

The following is a summary of the conclusions of the weekly analysts meeting in which we share thought and conclusions about the key market movers, lessons, and noteworthy developments to watch for the coming week, moderated, recorded and refined into one or more weekly previews by the Chief Analyst, yours truly.

Follow up:

This article summarizes the key market drivers in Asia, Europe, and the US. We present lessons and conclusions in a separate article here.

As the set of sample leading global stock index charts below show, US and European indexes closed the week higher overall, while Asian indexes, particularly Japan and China, were lower.

Market Review



Here's what drove the action in those charts

MONDAY: Earnings Both Good And Bad, Caution Ahead Of Belated US September Jobs Reports Dominate Monday Global Equities Trade

Asia up solidly on hopes for extended stimulus from US boosting stocks (yet one would think its USD - weakening affects would hurt exporters?) outweighs concerns that this same stimulus would weaken the USD and hurt exports.

European indexes were overall modestly higher on a few big name earnings beats.

US indexes flat, either slightly up or down, as lackluster earnings and caution ahead of Tuesday's belated jobs report kept US indexes virtually unchanged.

TUESDAY: Once Again, Bad US Jobs Reports Are Bullish, Markets Rejoice

Asian stock markets were relatively flat, with Japan's Nikkei up 0.13%; and Korea's KOSPI up 0.15%. Others were mostly modestly up or down, reflecting the catch-up effect, reflecting yesterday's performance in Europe and the US as muted earnings and caution ahead of the delayed monthly US jobs report narrowed stock trading ranges.

The big exception was China, with Shanghai down almost 1% and Hong Kong's Hang Seng down 0.52%, as rising benchmark Chinese interbank lending rates were starting to scare Chinese markets. Europe and the US markets would not respond to this until Wednesday.

Asia would be closed by the time the real news of the day (week?) hit - the poor and delayed September US NFP and Unemployment Rate reports.

European and US indexes were up at or near new 5 year highs, or in the case of the S&P 500, all-time highs. The driver was without doubt a disappointing delayed set of September jobs reports (NFP and Unemployment Rate) which fed hopes for continued QE for at least another 6 months or more.

As predicted in last week's post here (and discussed in greater depth in the Lessons section below), markets appear to have returned to their 'normal' QE-era behavior. That is, news on the US economy that is neither disastrously bad to signal a market crash, nor good enough to threaten QE, is once again bullish news, just as it was until threats of the QE taper began last May. Since May 2013 markets moved mostly on speculation about the QE taper, then on the US debt ceiling fight. See the Lessons section below for more on this and its ramifications for the coming week and beyond.

Some positive earnings news (see here details) from even just a few major European firms was enough to add to the positive vibes.

Reuters Leads The Cheers For European Earnings

There were some positive earnings reports from some major names in the European financial sector that fed the positive vibes. Reuters did its best to feed the mood, adding to the news of those earnings beats:

Of the 18 companies in the STOXX 600 that have so far reported third quarter earnings, 61 percent have beaten analyst expectations.

Ahem, isn't 18 out of 600 just 3%? So with 61% beating expectations, that means about 11 out of 600 companies in the index have beaten expectations.

So out of a statistically insignificant (?) sample, barely half of the firms beat expectations. If European analysts are anything like their US counterparts, those expectations were likely set low.

Or am I just being too negative?

Anyway, earnings results were secondary. It was bad jobs report and its equally dour ramifications (see the Lessons section below) that meant QE was officially resurrected . Key stats from the report include:

  • NFP: 148k new jobs vs. 180k expected. August revised up from 169k to 193k. Good news in that August was better, bad news in that it turned the drop from August to September into a steeper plunge that suggests more trouble ahead, as we discuss in the Lessons section below.
  • Unemployment Rate: fell from 7.3% to 7.2%, though most believe that's due more to discouraged workers dropping out of the workforce. Underemployment fell from 13.7% to 13.6%, though many believe is in fact well above 15%.

WEDNESDAY: PBOC, ECB Take Over From Fed As Prime Move Markets

After the recent days' speculation about the Fed's extension of QE well into 2014 and beyond, the spotlight shifted to two of the other leading central banks. On Wednesday it was PBOC and ECB policy moves that were the biggest market movers.

All leading global indexes were lower on the same combination of:

  • China reporting loan loss write-downs up 3 times in the first half of 2013. This comes at the same time as rising Chinese benchmark interbank lending rates are also scaring Chinese markets and those dependent on China, as they fear another period of tight credit conditions that could hurt growth. As we discuss below in the Lessons section, the news was not as bad as suggested by market reaction.
  • Fears that announced tougher ECB banks stress tests might actually make these tests accurate measures of bank health, or lack thereof.
  • A batch of mixed earnings and guidance offer no bullish support. One global sector bellwether, Caterpillar (CAT) cut its outlook while another, Boeing (BA), showed positive results. They neutralized each other's effect on sentiment.
  • The realization in Asia that expectations of extended QE mean a weaker USD and thus lower profits for exporters to the US.

US and European indexes were down modestly, but Asian indexes fell hard, between 1-2%, probably due to their sensitivity to the first and last of the above factors.

THURSDAY: Technical Bounce Helps Asian indexes, Earnings Boost Europe And US

Asian stock indexes were mostly modestly higher on a technical bounce, aka bargain hunting, after Wednesday's pullback, with Korea's Kospi the day's top performing Asian index, up 0.54%. However China was down hard, about 0.8%.

The People's Bank of China (PBOC) held back from adding cash into Chinese money markets for a third consecutive session, again raising concerns that it's clamping down on inflation, which hit 3.1% in September. The PBOC's inaction has meant that 58B yuan ($9.53B) has drained out from the country's interbank market this week. The sudden lack of liquidity meant China's seven-day repurchase rate - a benchmark for short-term funds - shot up 65 basis points, the biggest rise since July 29, to 4.67%. Chinese stocks dropped 0.8%, despite China's HSBC Flash PMI for October printing better than expected, with new orders at a 7 month high.

European shares were all modestly higher, with most major indexes up even better, about 0.5%, and Spain up nearly 0.9%, due to a batch of good earnings reports and the positive China HSBC manufacturing PMI report, which focuses more on smaller private firms than China's official manufacturing PMI report. As noted in the lessons section below, Chinese manufacturing health is bullish for Western manufacturers who supply Chinese factories.

All three big US indexes were solidly higher, around 0.5%, as a batch clutch of good US earnings reports added to the cheer from the above China data and European earnings helped them shrug off a flash PMI report that was below both expectations and the prior September reading.

Or perhaps that reading was actually seen as bullish for stocks? It was one of the first reports to show how companies did during government shutdown, and suggested that the disruptions hurt. It showed the first drop in factory output since September 2009, and dampened Q4 GDP expectations. The dour manufacturing report, combined with the already souring jobs picture held solidify the belief that the US economy is far from ready for QE, especially after the shutdown and ongoing effects of the sequester and uncertainty about how the next debt ceiling fight will go.

As noted in the Lessons section below, news that is neither exceptionally good nor bad is getting bullish responses as it suggests continued QE.

FRIDAY: China Tightening, USD Weakening Hurt Asia, Europe, Earnings Boost US indexes

Asian indexes were mostly solidly lower, with Japan Shanghai down especially hard. The top market drivers were combined fears of

  • Tightening credit conditions in China
  • Weakening USD due to belief that QE taper is off the menu for a long time

We discuss both in the lessons section below.

European indexes were mostly modestly lower except Spain down over 1% on a combination of:

  • Follow through on the same concerns pressuring from Asian markets earlier in the day noted above (China tightening, US easing that weakens the USD, and so strengthens the Euro)
  • Concerns from European earnings report trends. Compared to Q3 2012, fewer companies are beating estimates, and in the last week earnings estimates on the STOXX 600 have been falling at a faster pace.
  • Friday's German Ifo sentiment survey came in below expectations, casting doubt on the strength of the EZ recovery.

US indexes were modestly higher on the combined positive effect of big name tech earnings from Microsoft (MSFT) and Amazon (AMZN) announced after the close Thursday, and durable goods reports that were mixed but not bad enough to cancel out the positive effects of the earnings.

With an entrenched uptrend on the weekly index charts breaking to new highs, fueled by what looks like another year of QE, it suddenly feels like we're back where we were a year ago, so why not expect the uptrend to continue? Hence the bias remains bullish.

See here for lessons and conclusions drawn from the above.


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