On 06 October, 2015 – Rising commodity prices boosted European markets

Stocks advanced in the Asia Pacific and Europe but were mixed in the US. Biotech stocks were hammered in the US.

United States

United States markets were mostly down Tuesday, taking a pause after five consecutive days of gains. The Dow Jones industrials inched up 0.1% while the S&P was down 0.4% and Nasdaq dropped 0.7%.

Shares of the chemical giant DuPont advanced after the company’s chief executive, Ellen Kullman, said she would retire next week, a sudden departure for her. DuPont’s profit has lagged in recent years and the company has been a target of activist investors like Nelsen Peltz. Freeport-McMoRan was up after the company said it was exploring the idea of spinning off its oil and natural gas business into a separate company. Freeport is primarily a copper and gold mining company but got into oil and gas drilling in recent years when oil prices were climbing. Activist investor Carl Icahn disclosed two months ago that he had bought an 8.5% stake in the company. A selloff in health care stocks deepened in afternoon trading. Energy companies were higher after crude-oil futures jumped on signs of falling supply. Chevron and Exxon Mobil advanced. Vertex Pharmaceuticals, Celgene, Merck and Pfizer retreated.

Global markets have been volatile since fears over a slowdown in the Chinese economy and its impact on global growth mounted in August, following China’s devaluation of its currency. Stocks around the world closed their worst quarter in four years at the end of September.

According to the latest IMF World Economic Outlook, global growth for 2015 is projected at 3.1%, 3 tenths lower than in 2014 and 2 tenths below the forecasts in the July. Prospects across the main countries and regions remain uneven. Relative to last year, the recovery in advanced economies is expected to pick up slightly while activity in emerging market and developing economies is projected to slow for the fifth year in a row, primarily reflecting weaker prospects for some large emerging market economies and oil-exporting countries. In an environment of declining commodity prices, reduced capital flows to emerging markets and pressure on their currencies, and increasing financial market volatility, downside risks to the outlook have risen, particularly for emerging market and developing economies.

Gold at the afternoon London fixing was up US$7.75 to US$1,147.50. Copper futures were up 0.2% to US$2.36. WTI spot crude was up US$2.43 to US$48.69. Dated Brent spot crude was up US$2.73 to US$51.98. The US dollar was down against all of its major counterparts including the euro, yen, pound, Swiss franc and the Canadian and Australian dollars. The Dollar Index dropped 0.8%. The yield on US Treasury 30 year bond was down 2 basis points to 2.88% while the yield on the 10 year note slipped 1 basis point to 2.04%.

Europe

Stocks turned positive after some indecisive trading in the morning session. Some disappointing economic data from Germany weighed on investor sentiment in early trading. Rising commodity prices, especially the continued increase in oil prices, provided a boost to the markets in the afternoon. The FTSE was up 0.4%, the SMI added 0.2% and both the CAC and DAX gained 0.9%.

Daimler climbed after reporting an increase in Mercedes-Benz deliveries. BMW, Volkswagen, Renault and Peugeot also advanced. Bayer slipped while Covestro, formerly known as Bayer MaterialScience, jumped on its first day of trading. Vivendi gained — the company has increased its stake in Telecom Italia SpA yet again. Bouygues was up after it announced its profit targets. Total and Technip finished higher as did Royal Dutch Shell. In London, SABMiller declined after the brewer reported a 9% drop in second quarter group net producer revenue. Further, a report said the company's management may fight a bid from Anheuser-Busch InBev. Randgold Resources increased on rising gold prices. Fresnillo and Anglo American also advanced. SBM Offshore climbed in Amsterdam — a potential fine for the company regarding an alleged bribery in Brazil came in less than analysts had estimated.

August German industrial orders unexpectedly dropped 1.8% on the month. It was the second straight monthly decline as holidays dampened domestic demand while a sharp drop in non-EU orders suggested that exports are likely to be weak in coming months. It appears that German companies are increasingly hurt by the weakness in the emerging markets, especially China.

Asia Pacific

Most stocks gained in this region thanks to a bounce in oil and other commodity prices and strong overnight gains in the US and European markets. While fears of an immediate rate increase by the US Federal Reserve have receded, gains were kept in check by lingering concerns over a China-led global economic slowdown. Mainland China markets remained closed for the National Day holidays. The Hang Seng slipped 0.1%, reversing early gains.

The Nikkei added 1.0% as negotiators reached a deal on a Pacific trade pact after more than five years of negotiations. Also, the yen remained on the defensive on growing speculation the Bank of Japan might expand its stimulus program to support the flagging economy. Speculation is rife that the BoJ might take more action when it releases updated growth and inflation forecasts on October 30. Steelmakers were in demand, with Kobe Steel, JFE Holdings and Nippon Steel and Sumitomo Metal advancing. Fast Retailing, Fanuc Softbank Corp gained. Kubota climbed on reports it plans to expand its farming machinery business in Asia. Hitachi Construction Machinery and Komatsu were up. However, Pacific Metals, Alps Electric, Bridgestone, Sumco and Kawasaki Kisen Kaisha retreated.

Both the S&P/ASX and All Ordinaries gained 0.3% after the Reserve Bank of Australia left its official cash rate at 2.0% saying the country's currency is adjusting to lower commodity prices. Miners and banks paced the gains amid firmer commodity prices. Australia's trade deficit unexpectedly widened in August to AUS$3.1 billion, missing expectations for a shortfall of AUS$2.4 billion. Both the Kospi and Sensex added 0.6%.

Looking forward

The Bank of Japan announces its monetary policy decision. Germany and the UK post August industrial production. France reports August merchandise trade balance. In the US, August consumer credit will be reported. The Fed’s Beige Book will be published.

Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.