On 14 October, 2015 – Global markets declined on economic cues

Stocks retreated globally on earnings reports that did not meet expectations and another round of disappointing Chinese data.

United States

US stocks were down led by declines in retailers after a disappointing forecast from Walmart. Shares also were lower on a mixed bag of earnings. The Dow Jones industrials were down 0.9%, the S&P declined 0.5% while the Nasdaq lost 0.3%.

Investors were assessing the earnings of three big banks on Wednesday. While Bank of America gained after reporting earnings, shares of JPMorgan and Wells Fargo declined. Cheaper fuel helped Delta Air Lines shrug off a slight decline in revenue and post sharply higher third quarter net income of US$1.32 billion. Walmart Stores dropped after the retailer announced that its sales would be flat this year because big fluctuations in currency markets that have crimped the value of its overseas sales. The company also announced a US$20 billion share buyback but the drop in its share price wiped out close to the same amount in market value. Wal-Mart said it would invest several billion dollars to lower prices over the next three years, which along with investments in its online business and to boost wages for entry-level workers, would weigh on earnings. TripAdvisor surged after the travel website operator announced a tie-up with Priceline that will bring several of its brands, including Booking.com, to TripAdvisor’s instant booking platform.

Bank of America said it swung to a third-quarter profit, after big legal expenses last year pushed the bank into the red. Profit totaled US$4.51 billion, or 37 cents a share, compared with a loss of US$232 million, or 4 cents a share, in the same period of 2014. Revenue fell to US$20.91 billion from US$21.43 billion a year ago. Wells Fargo said its third quarter profit was $5.8 billion, or $1.05 a share. That compares with US$5.73 billion or US$1.02 per share in the same period a year ago. Revenue rose to US$21.9 billion.

The Federal Reserve published its Beige Book in preparation for its October 27 and 28 FOMC meeting. Nine (11 last time) of its 12 regional banks reported that growth was moderate or modest from mid-August through the beginning of October. Manufacturing activity was described as “mixed but generally weaker” than last time, on the back of headwinds in the energy sector. The strong dollar continued to be cited as having a “weakening influence” on manufacturing activity. The Fed's report echoes other recent data that suggests the economy, while still expanding, has run into headwinds from overseas and has lost momentum.

Gold at the afternoon London fixing was up US$8.70 to US$1,173.90. Copper futures were up 1.3% to US$2.42. WTI spot crude was down 8 US cents to US$46.58. Dated Brent spot crude was down 1 US cent to US$49.23. 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 declined 1.1%. The yield on US Treasury 30 year bond was down 4 basis points to 2.84% while the yield on the 10 year note declined 6 basis points to 1.98%.

Europe

Shares were down Wednesday, extending losses from the previous two trading days. Concerns over the slowdown in China pressured the markets again, after Chinese inflation and producer price reports. Disappointing Chinese merchandise trade data was largely responsible for the prior day's slide. The FTSE was down 1.1%, the CAC declined 0.7%, the DAX lost 1.2% and the SMI retreated 0.9%.

E.ON and RWE finished higher. In Paris, Vivendi and Engie gained. In London, Hargreaves Lansdown was up after it said its first-quarter revenue grew 11% from last year. Net new business inflows jumped 47% and total active client numbers rose by 24,000. Diageo declined after it agreed to sell its US based Chateau and Estate Wines and the UK based Percy Fox businesses to Treasury Wine Estates for US$552 million. Fresnillo gained after it said it is on track to meet its 2015 production targets of 45 to 47 million ounces of silver and 715 to 730 thousand ounces of gold. Rising gold prices also provided a boost to some mining stocks. Randgold Resources, Antofagasta, Glencore and Rio Tinto advanced.

August Eurozone industrial production declined 0.5% from the prior month, reversing a revised 0.8% increase in July. UK unemployment rate declined to 5.4% in three months to August and the employment rate hit a record high. Among the stocks hurt by exposure to China were Asia-focused bank Standard Chartered and Burberry.

Asia Pacific

Stocks here retreated thanks to the disappointing Chinese inflation data which added to concerns over slow growth. The Shanghai Composite lost 0.9% while the Hang Seng was 0.7% lower. September inflation eased to an increase of 1.6% from a year ago reflecting a slowdown in food prices. Producer prices extended their downward trend, adding to fears of deflationary pressure amid moderation in economic growth. The PPI dropped 5.9% posting its 43rd consecutive month of decline. The Hang Seng was 0.7% lower.

The Nikkei tumbled 1.9% as China-related jitters took a hefty toll on steel, rubber products, machinery and shipping stocks. A weaker dollar also dampened investor sentiment. Energy explorer Inpex and JX Holdings dropped after oil prices gave up early gains to close lower for a second day running overnight. Nikon dropped on a Nikkei report that its operating profit likely fell 27% on the year in the first half. Sumitomo Mitsui Construction plummeted on reports that authorities are investigating a condominium building it built in Yokohama.

Both the S&P/ASX and All Ordinaries slipped 0.1% as concerns over the Chinese economy intensified. Oil & gas producer Santos slumped after oil prices retreated Tuesday in the wake of a bearish forecast from the International Energy Agency. Miners were mixed. Westpac was in a trading halt after announcing a capital raising. The other three big banks however, advanced. Shares of Treasury Wine Estates also entered a trading halt after the company agreed to buy the majority of Diageo’s US and UK wine operations for a cash consideration of US$552 million. Domino's Pizza Enterprises jumped after announcing the acquisition of French based pizza chain Pizza Sprint.

The Kospi was 0.5% lower as Chinese inflation data and worries about US earnings for the third quarter prompted foreign investors to offload shares for the first time in six sessions. The Sensex was down 0.2%.

The Monetary Authority of Singapore said that it would target a slower appreciation of the Singapore dollar against a basket of currencies, in light of a softer outlook for the global economy. The city-state uses a managed exchange rate — rather than interest rates — as its main monetary policy tool. The nation’s economy grew 0.1% on year on a seasonally adjusted basis, narrowly missing a technical recession, compared with a 2.5% contraction in the second quarter.

Looking forward

Australia reports its September labour force data. In the US, October Empire State and Philadelphia Fed manufacturing surveys along with weekly jobless claims, money supply and Fed balance sheet will be reported.

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.