On 04 November, 2015 – European markets were mixed on comments from the US Federal Reserve

Stocks were mixed globally. US shares retreated thanks to falling crude prices and comments by Fed Chair Janet Yellen.

United States

Stocks declined in early afternoon trading Wednesday as weakness in energy companies dragged down the broader market. The price of oil fell sharply, reversing a recent gain. Media stocks plunged after Time Warner issued a bleak outlook. Investors were also keeping a close eye on the Federal Reserve. Chair Janet Yellen told Congress that the Fed could still increase interest rates at its December meeting. The Dow Jones industrials were down 0.3%, the S&P retreated 0.4% and the Nasdaq edged 0.1% lower.

Ms Yellen told a congressional hearing that an interest rate increase in December would be a “live possibility” if the economy stays on track. She stressed that no decision had been made and that a move in December would depend on how the economy fares between now and then. At its December 15 to16 meeting, the Fed will consider raising its fed funds rate from a record low of near zero if the economy continues to grow at a strong enough pace to keep adding jobs and push annual inflation toward the Fed’s 2% target according to the Fed chair. Her comments helped send the dollar higher against other major currencies. The October jobs report which will be released during the Friday global market day is widely viewed as an important gauge for whether the Fed will raise interest rates at its December meeting.

Energy stocks have been a significant catalyst for the market’s upward move for the last few days, but that momentum faded Wednesday sending both Chesapeake Energy and Noble Energy lower. Media companies fell sharply after Time Warner gave a worrisome earnings forecast for 2016. The company cited concerns about “cord-cutting,” a phenomenon that has been increasing in recent years, in which longtime cable TV subscribers have canceled or substantially curtailed their subscriptions, opting instead for cheaper online services like HBO GO or Netflix. Shares of Time Warner, Viacom and 21st Century Fox retreated while Netflix gained. Michael Kors Holdings advanced after the company reported revenue and profit in the latest quarter that were stronger than analysts had expected. Tesla Motors shares jumped after the company announced a wider than expected loss for the quarter but also said it was increasing car production.

Facebook reported a 40.5% jump in quarterly revenue helped by the launch of new advertisement formats and updates to its mobile app that drove more ad sales. Revenue jumped to US$4.50 billion in the third quarter ended September 30 from US$3.20 billion a year earlier. Net income attributable to stockholders rose to US$891 million or 31 US cents per share, from US$802 million, or 30 US cents per share.

Qualcomm’s quarterly profit plunged 44 percent as the company was hurt by fierce competition and it took longer than expected to close new license agreements in China. The net income attributable to Qualcomm fell to US$1.06 billion or 67 US cents per share in the fourth quarter ended September 27 from US$1.89 billion or US$1.11 per share a year earlier.

These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was down US8.40 to US$1,114.70. Copper futures were down 0.3% to US$2.32. WTI spot crude was down US$1.39 to US$46.51. Dated Brent spot crude was down US$1.78 to US$48.76. The US dollar was up against all of its major counterparts including the euro, yen, pound, Swiss franc and the Canadian and Australian dollars. The Dollar Index was up 0.9%. The yield on US Treasury 30 year bond was down 1 basis point to 2.99% while the yield on the 10 year note was up 1 basis points to 2.23%.

Europe

Stocks were mixed. Most markets had been up solidly in early trading after European Central Bank President Mario Draghi reiterated the dovish comments he made in October. However, the markets pared their gains in the afternoon following comments from Fed Chair Janet Yellen. She assured the Financial Services Committee that the Federal Reserve will raise interest rates gradually once it begins to tighten monetary policy. The FTSE added 0.5% and the SMI and CAC advanced 0.2%. The DAX however, retreated 1.0%.

The National Institute of Economic and Social Research (NIESR) lowered its UK growth projections and said it expects the Bank of England to raise interest rates at the start of next year. Expected growth was lowered to 2.4% from 2.5% in 2015 and from 2.4% to 2.3% in 2016. The institute said the BoE is likely to lift interest rates at the start of 2016 and then gradually by 50 basis points a year, reaching 2% by the end of 2018.

Volkswagen sank after it said the new emissions revelation could cost the company €2 billion. Moody’s cut Volkswagen’s credit rating and warned of the potential for more cuts amid the deepening emissions-rigging scandal. Moody's said the move came after news that Volkswagen found irregularities in carbon dioxide emissions in 800,000 vehicles, as well as new claims from the US Environmental Protection Agency that defeat devices were installed in more cars than initially expected, including in the company's Porsche brand.

Daimler, BMW and Peugeot declined as well. Barry Callebaut was down after the world's biggest maker of bulk chocolate lowered its mid-term targets. Fresenius Medical Care and Fresenius retreated. Technip and Total gained. In London, Glencore surged after the commodities trader and miner said it was on track to reduce its debt and boost liquidity. The company also reiterated guidance for its trading arm. Marks & Spencer gained after raising its profitability forecast. Vedanta Resources was down after omitting a dividend for the first half. Housing stocks extended Tuesday's weakness after a broker cut its rating on the sector to "Sell." Taylor Wimpey, Berkeley Group and Persimmon retreated.

Asia Pacific

Almost all indices advanced Wednesday with Chinese, Hong Kong and Japanese shares leading the gains after Japan Post firms made a strong trading debut and a private survey showed activity in China's services sector accelerated in October. Modest gains in US trading overnight despite disappointing factory orders data and a sharp rebound in crude prices on concerns over supply disruptions in Libya and Brazil also buoyed demand for riskier assets.

The Shanghai Composite jumped 4.3% and the Hang Seng gained 2.1% after PBoC governor Zhou Xiaochuan said in an article on the central bank's website that the Shenzhen-Hong Kong stock connect will be launched this year. The rally comes after China’s central bank published an article Tuesday on its website citing Governor Zhou Xiaochuan saying China will unveil the Shenzhen-Hong Kong Stock Connect this year. Although Chinese markets stayed sharply higher, the central bank later clarified that Mr. Zhou had made the comments in May. Investors also reacted positively to upbeat services sector data and news that China's top hedge fund manager Xu Xiang has been arrested in connection with the summer's stock market crash.

The Nikkei was up 1.3% after shares of state-owned Japan Post Holdings and its two financial units jumped on their trading debut. Investors also cheered comments from the Chinese Premier Tuesday that the country's annual economic growth rate over the next five years will not be less than 6.5%. Shares of Japan Post Holdings, Japan Post Bank and Japan Post Insurance closed up 20%, 15% and 56%, respectively from their initial public offering prices. Nissan Motors gained after raising its full year profit outlook. Toyota and Honda Motor also advanced. Inpex, JX Holdings, Fast Retailing and Softbank advanced. Takata dropped after it agreed to a US$70 million US fine and Honda said it won't use front air bag inflators made by the company.

Both the S&P/ASX and All Ordinaries added 0.1% after recent economic reports painted a mixed picture, with the trade deficit narrowing in September on higher exports and retail sales growth meeting forecasts while a gauge of services sector slipped into contraction territory in October, underscoring the fragility of the economic recovery. The Kospi added 0.2% on foreign fund buying. The Sensex slipped 0.1%.

Looking forward

Germany releases September manufacturing orders. Eurozone posts September retail sales. The Bank of England announces its monetary policy decision, releases the minutes from the meeting and publishes its Quarterly Inflation Report. The US reports its quarterly productivity & costs data along with the weekly jobless claims, money supply and Fed balance sheet data.

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.