Global equities were volatile last week as earnings ups and downs were quickly reflected in stock indexes' performance. The week started on an upbeat note as equity investors quickly gave their approval to President George W. Bush's appointment of Ben Bernanke as the next Federal Reserve chairman. He will replace Alan Greenspan when his term ends on January 31, 2006. Naturally, Asian reaction lagged a day given the time differential. But the positive effects didn't linger long in investors' minds as earnings reports quickly became the priority. As the end of the calendar year approaches, market behavior sometimes is affected as investors sell assets that have performed well during the year and to try to lock in profits. On the week, performance was decidedly mixed with eight of the indexes followed here up and five down. With one trading day remaining in October, 12 of the 13 indexes are down on the month. The Topix is barely up 5 points.
Investors were unnerved by the Securities and Exchange Commission subpoena of General Motors over its accounting practices. It took a toll on the dollar which had previously reached a two-year high against the yen. The dollar had briefly been supported by higher bond yields, but had weakened slightly after Ben Bernanke's appointment. Some investors think that interest rates will not increase as quickly at a Bernanke Fed because of the perceived dovish reputation of the proposed new chairman.
Global Stock Market Recap
Europe and UK
Stocks in Europe and the UK were in part influenced by U.S. trading patterns. Earnings surprises also influenced trading and made for day-to-day volatility. Disappointing news from European automakers on Friday, however, was offset by better-than-expected third quarter U.S. GDP growth, which expanded at an annualized pace of 3.8 percent. However, the CAC could not overcome the Peugeot earnings disappointment. Their profits were short of market expectations and the company expressed concerns about the outlook for the full-year and beyond. Analysts pointed out that market gyrations could reflect investor confusion over recent economic data. And of course, always lurking in the background these days are concerns about inflation. Again, some analysts dismiss the prospects of an inflation scare - that is, unless oil prices surge again.
The FTSE was the bright spot. It managed to regain back more than half of the heavy losses of the week before. The index was up 1.4 percent while the CAC lost 0.9 percent and the DAX was down 0.3 percent.
Asia/Pacific
Asian markets ended lower Friday, dragged down by Thursday's declines on Wall Street and worries about interest rates and bird flu. Japanese shares slipped on disappointing industrial output figures and the losses in U.S. stocks. Japan's domestic economic recovery remains slow judging by Friday's data along with some disappointing quarterly earnings reports. But despite the weaker-than-expected data, both the Nikkei and Topix improved on the previous week. However, the indexes were unable to recoup the heavy losses of the prior week. And in Hong Kong, stocks declined amid worries that the cases of bird flu cropping up around the world could turn into an epidemic.
Currencies
The euro traded strongly against its major trading partners last week as expectations of an early interest rate increase by the European Central bank were strengthened by the release of money supply data that showed the three-month moving average for M3 expanding by 8.3 percent on the year. This is significantly above the ECB's target growth rate of 4.5 percent and illustrates how rapidly expanding liquidity is in the EMU. But the euro quickly lost ground after GDP data showed that the U.S. grew faster than expected in the third quarter. Despite Friday's weakening, the euro gained against the dollar for the week. Adding to the interest rate talk was Friday's flash harmonized index of consumer prices that showed a 2.5 percent jump when compared with last year. The inflation hawks on the ECB council are becoming increasingly vocal in their concerns, leading analysts to adjust their forecasts for a rate increase.
The yen retreated after initially gaining ground against the dollar despite disappointing September industrial production growth of just 0.2 percent, well below the consensus forecast of 2 percent. Traders said the data underlined the need for caution over market expectations for an early end to Japan's quantitative easing in monetary policy. The weakening yen benefits the country's exporters' profits when they are repatriated as well as improving their market position in the U.S. thanks to lower prices. With one day of trading remaining in October, the yen was down on the month while the euro was up slightly.
Indicator scoreboard
EMU - October economic sentiment increased to 100.5 from 98.6 in September. The improvement was wide spread. Industrial sentiment edged up to minus 6 from minus 7 in the previous month while consumer sentiment improved to minus 13 from minus 14. All sub-sectors of the index were either stable or higher on the month. Services jumped to plus 15 from plus 11 while retail was up to minus 4 from minus 8.
M3 money supply growth for the three months ending in September climbed to 8.2 percent when compared with the same three months in 2004. For the previous three months, the increase had been 7.9 percent. The ECB target for the three-month moving average is 4.5 percent. September private sector loan growth accelerated to 8.6 percent from 8.4 percent when compared with last year.
Germany - October Ifo business sentiment index climbed to 98.7 from 96 in September. Current conditions improved to 98.9 from 96.5 in the prior month. Business expectations were also up, jumping to 98.5 from 95.5. Both conditions and outlook were up for manufacturing, construction, wholesale and retail sectors.
France - September producer price index was up 0.6 percent and 3.4 percent when compared with last year. Excluding food and energy, the PPI was up 0.2 percent and 1.2 percent on the year. Energy prices jumped 2.4 percent with fuel prices soaring by 4.3 percent in September. The 0.2 percent decline in food and agriculture prices did little to offset these increases.
September seasonally adjusted unemployment rate edged down to 9.8 percent from 9.9 percent in August. The jobless level was down by 34,000 jobs to 2.678 million. Unemployment is measured by the International Labour Organisation definition which excludes those who did any work during the month.
Asia
Japan - September seasonally adjusted merchandise trade surplus retreated to ¥556.5 billion, down from a revised ¥610.6 billion in August. Imports were up 0.8 percent but exports sank 0.3 percent on the month. On the year, seasonally adjusted exports were up 7.8 percent while imports surged 15.6 percent on buoyant domestic demand and record oil prices. Exports to China soared 14.4 percent while U.S. shipments jumped 5.8 percent on the year.
September industrial production inched up by 0.2 percent and was up 1.1 percent when compared with the same month a year ago. Industries that contributed to the increase included transport equipment, electronic parts & devices and other manufacturing. Commodities that mainly contributed to the increase are active matrix LCD, small passenger cars and metal oxide semiconductor IC (Logic).
September seasonally adjusted spending by households headed by wage earners was unchanged and edged up 0.1 percent when compared with a year earlier. Wage-earner household spending is an important gauge of personal consumption, which accounts for roughly 55 percent of Japan's gross domestic product. The propensity for wage-earner households to consume, a ratio which measures the amount of disposable income that went to household spending, declined to 73.6 percent from 75.1 percent in August.
September unemployment rate stood at 4.2 percent. The total number of jobless fell 240,000 on the year to 2.85 million people.
October Tokyo consumer price index was up 0.1 percent but down 1 percent when compared with last year. Tokyo core CPI, which excludes fresh food, was up 0.1 percent and down 0.3 percent on the year. September nationwide CPI was up 0.3 percent and down 0.3 percent on the year. Core CPI was up 0.2 percent but down 0.1 percent on the year.
Australia - Third quarter producer price index excluding exports was up 1.5 percent and 3.4 percent when compared with the same quarter a year ago. The domestic PPI was up 1.4 percent and 4.6 percent on the year while import PPI was up 1.2 percent but down 3 percent on the year. The domestic components were up mainly due to increases in building construction an petroleum refining which were not completely offset by declines in meat and meat product manufacturing. The import component was up due to price increases for consumption goods including petroleum refining and tobacco product manufacturing.
Third quarter consumer price index was up 0.9 percent and 3 percent when compared with last year. Cheaper goods from China tempered the impact of surging gasoline costs. Core CPI, which excludes gasoline, education and fruit & vegetables, was up by 0.6 percent and 2 percent on the year. Gasoline prices surged 11.6 percent but medicine prices dropped 4.8 percent.
Americas
Canada - September consumer price index was up 0.9 percent and 3.4 percent when compared with the same month last year. There have been only three increases of comparable magnitude over the past 15 years. The monthly gain was due mostly to higher gasoline prices and men's and women's clothing. Lower prices for fresh vegetables and fresh fruit exerted a moderating effect on the increase. CPI excluding food and energy was up 0.4 percent and 1.6 percent on the year. The Bank of Canada's core CPI which excludes the eight volatile components was up 0.3 percent and 1.7 percent on the year. The main upward factor was increased women's clothing prices while most of the downward pressure was due to a decline in homeowners' maintenance and repair prices. On a seasonally adjusted basis, the CPI was up 0.7 percent and 3.2 percent on the year while core CPI, excluding food and energy, was up 0.2 percent and 1.6 percent.
September industrial producer price index was up 0.4 percent and 0.6 percent when compared with last year. Price increases were led by those for petroleum and coal producers. Petroleum and coal producers raised prices by 8.3 percent. Excluding petroleum and coal, the factory price index would have fallen by 0.4 percent.
September raw material price index was down 0.3 percent after soaring 4.5 percent increase in August. The RMPI was up 14.3 percent when compared with last year. Mineral fuels were unchanged compared to August. Crude oil prices had increased following hurricane Katrina, but as concerns about supply diminished, prices fell back to remain unchanged from August.
In September, the value of the Canadian dollar was up 2.2 percent against the U.S. dollar. As a result, if the impact of the exchange rate had been excluded, the IPPI would have risen 1.0 percent instead of its actual increase of 0.4 percent. On the year, the value of the Canadian dollar rose 9.4 percent against the U.S. dollar. If the impact of the exchange rate had been excluded, producer prices would have risen 3.0 percent on the year rather than their actual increase of 0.6 percent.
Bottom line
The monthly round of central bank meetings will capture market focus next week. Leading off the busy week on Tuesday is the Federal Reserve Open Market Committee. The FOMC is expected to push the fed funds rate to 4 percent. On Wednesday, the Reserve Bank of Australia is expected to keep rates stable for another month. And on Thursday, the European Central Bank is also expected to leave interest rates unchanged, but the rhetoric could contribute to a possible rate increase down the road. The governing council is expected to express their concerns about inflationary pressures. The first week of the month also brings a slew of new economic data that includes the PMIs - both manufacturing and services - as well as manufacturing orders data from Germany.
Looking Ahead: October 31 through November 4, 2005
Equity trading volatile
