Europe
The DAX continues to drive sentiment in Europe remaining under pressure, despite another rebound in Volkswagen (XETRA:VOWG) shares in the wake of CEO Martin Winterkorn’s departure.
They say misery loves company and Volkswagen could well be joined on the naughty step by other car makers, as the rest of the auto sector comes under further pressure over concerns that other car companies could become implicated in the “defeat device” fallout.
BMW (LONDON:0O0U) shares have dived on a report that the diesel X3 emits more emissions than the VW Passat according to a report in Auto Bild, and the auto sector in general will in all likelihood remain one to avoid until the mists of uncertainty relating to other auto makers disappear.
In a sign that investors are fearful of contagion risk, Peugeot SA (LONDON:0NQ9), Renault (PARIS:RENA) and Daimler AG (XETRA:DAIGn) NA O.N. (LONDON:0NXX)shares are also lower.
Today’s German IFO business survey reported an improvement in economic sentiment in September, but this survey was done before the VW scandal broke and it is quite likely given the repercussions this event is likely to have on German supply chains that if the survey were done now the result would likely be very different. Next month’s survey could well be quite different in tone and sentiment.
The uncertainty in the auto sector is also rippling out further down the supply chain with GKN (LONDON:GKN) under pressure, though Johnson Mathey who make catalytic converters does appear to be finding some level of buying interest at these levels.
Away from the auto sector the picture isn’t that much brighter with mining stocks once again on the back foot with Glencore (LONDON:GLEN) once again taking a beating as it flirts in and around the 100p level.
Central banks around the world continue to telegraph their concerns about their respective economies with Norway and Taiwan cutting their benchmark lending rates, with the Norges Bank warning of more to come, bringing the total number of central banks that have cut rates this year to 40.
US
US markets took their cues from a weaker European session opening significantly lower despite a fairly positive weekly jobless claims number, which came in below expectations at 267k. The continued improvement in the jobless numbers appears to fly in the face of continued weakness elsewhere as US economic bellwether Caterpillar Inc (NYSE:CAT) cut its forecasts, as well as announcing job cuts of 10,000, as it struggles to deal with the fallout of the slowdown in the mining sector.
US automakers are also lower as investors steer clear of the auto sector until the cloud over emission concerns starts to clear, with GM and Ford shares on the slide.
Core durable goods orders for August also continued to show no signs of a pickup in spending for the US consumer, coming in unchanged, begging the question at a time of falling energy prices, why demand remains sluggish. Year to date core durable goods are negative to the tune of 0.9%, yet we continue to hear siren calls for the Fed to “get off zero” at a time when other central banks are moving in the opposite direction.
Attention will now shift to Fed Chief Janet Yellen’s speech later this evening where investors will be hoping for additional cues to reinforce the narrative being pushed earlier this week by FOMC members Williams and Lockhart.
FX
Not surprisingly, given this morning’s decision by the Norges Bank to cut interest rates sharply with a hint of more to come, the Norwegian Krone is the worst performing currency, while the continued weakness in oil prices is reinforcing the downward pressure dragging the Canadian dollar to multi year lows as well.
The best performers have been the Swiss franc and Japanese yen, not altogether surprising on a day when risk aversion is the overriding sentiment.
The euro has also recovered a lot of its weakness from the early part of this week after ECB President Mario Draghi remained non-committal on the prospect of further stimulus for the euro area. Given what is happening in Germany right now and the fallout from the Volkswagen episode the ECB are probably playing a watching brief to see how events pan out later in the year.
Commodities
Today’s weakness in US durable goods data has helped push gold prices back off their recent lows to their highest levels this month as markets pare back the prospects of the Fed raising rates much before the end of the year. The yellow metal was also helped by reports that China’s net imports saw a rise in August in the wake of the recent yuan revaluation.
Oil prices continue to chop around aimlessly though they did hit one week lows as concerns about weak demand in the US keep downward pressure on prices.
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