Market update: ECB sheds light on Asset Quality Review – 23.10.2013

Source: Henderson Global Investors

The S&P 500 Index rose 0.6% yesterday (Dow Jones +0.5%) to close at another record high after investors interpreted weak US jobs data as a sign that the US Federal Reserve might refrain from tapering its bond-buying programme this year. The US Employment Report was underwhelming, revealing that only 148,000 non-farm jobs were added in September versus the 180,000 that had been anticipated. The unemployment rate inched down to 7.2%, but the number of long-term unemployed remains high compared to historical levels. The lacklustre data increased demand for 10-year treasury bonds, while the dollar weakened against some other major currencies, particularly the yen.

Overnight the Shanghai Composite continued to slip (-1.3%) following yesterday’s announcement about rapid growth in Chinese property prices. The seven-day repurchase rate (a measure of funding availability in China’s banking system) came under pressure, although the central bank refrained from adding funds to the money markets.

Markets across Europe are in negative territory this morning (FTSE Eurofirst 300 -0.7%; FTSE 100 -0.5%) after a number of disappointing company updates. The world’s third largest brewer, Heineken, cut its full-year guidance while STMicroelectronics’ revenues fell short of analysts’ expectations. Also in the news this morning, the European Central Bank (ECB) has set out its plans to undertake a comprehensive batch of tests on the eurozone’s top 128 lenders. The Asset Quality Review should be completed by October 2014 before the ECB assumes its new supervisory role for the banking system.