Market update: China’s liquidity squeeze weighs on markets – 25.10.2013

Source: Henderson Global Investors

US equities moved higher yesterday (S&P 500 +0.3%; Dow Jones +0.6%) as investors judged that weak US economic data would prolong the Federal Reserve’s stimulus programme. Initial jobless claims for unemployment benefits fell less than anticipated last week, down 12,000 to a seasonally adjusted figure of 350,000, according to the US Labor Department. Separately, Markit’s flash US manufacturing purchasing managers’ index fell to 51.1 in October from 52.8 in September, its lowest level for a year (a reading above 50 indicates expansion). On the corporate earnings front there were encouraging reports from carmaker Ford, homebuilder PulteGroup and after the bell, Amazon and Microsoft beat forecasts. But, so far, just 53% of companies have beaten analysts’ revenue expectations, below the long-term average of 61%, according to Thomson Reuters data.

Overnight, the Shanghai Composite fell 1.5% as markets continued to worry about a Chinese liquidity squeeze: the People’s Bank of China’s seven-day repurchase rate has risen above 5% compared to 3.5% a week ago. Japan’s Topix dropped 2.1% after investors were unnerved by a report from the Japanese Cabinet Office, who downgraded their assessment of Japanese exports. The slide in Japanese equities came despite news that Japan’s core consumer prices index rose 0.7% in the year to September, a sign that the government’s plan to defeat deflation might be paying off. European markets have opened lower after the weak Asian session, with the FTSE Eurofirst 300 and FTSE 100 down 0.2% and 0.03%, respectively, at the time of writing.