Europe
Stocks suffered another setback today with investors concerned over the uncertainty and possible repercussions of demonstrations in Hong Kong and FX intervention from the Reserve Bank of New Zealand.
Hong Kong stocks as well as the USD/HKD saw substantial losses after police used brutal force including tear-gas and pepper spray to quell demonstrations in the city centre. Many shops and banks are closed while the demonstrations remain which won’t help Hong Kong’s deteriorating retail sales.
Protestors are unhappy at the semi-democracy imposed by Beijing in which elections are allowed but only from a pool of pre-selected candidates. Protestors in Hong Kong are clearly aiming for the kind of representative elections that can be found in the UK which offers a choice between two Eton graduates.
The key as to whether the HK protests have any lasting impact could be the response of from the mainland, any heavy-handedness will spark western outrage, put the spotlight on Beijing and risks future FDI growth into China. A misstep by the Chinese government over the Hong Kong protests risks the country being ostracized in a similar fashion to Russia which could have even wider implications for global growth.
Shares in HSBC Holdings Plc (NYSE:HSBC) and Standard Chartered (LONDON:STAN) were weighing on the FTSE 100 over their exposure to Hong Kong while Pearson was a top faller thanks to a cancelled $1bn contract for digital school books in the US. Petrofac (LONDON:PFC) led the charge for oil stocks after a broker upgrade.
US
Markets in the US were again beset with pre-open selling, the Hong Kong protests are concerning but also act as a convenient pretext to flush out higher valuation stocks ahead of earnings season.
Technology and oil stocks were getting hit the hardest after a strong year and lofty valuations.
Alibaba (NYSE:BABA)options start trading today after its September 19th stock market debut; expectations are that there will be more call demand that put, nevertheless it will be telling for future stock price movement how many Alibaba bears have been lurking behind the scenes and what they are willing to pay in premiums for that opinion.
FX
The EURUSD had a bit of a pullback from recent weakness after German CPI data surprised slightly on the upside with zero price growth in September against expectations of deflation leaving 0.8% annual price growth after food prices increased slightly.
The German CPI data likely won’t impact the ECB’s decision-making on Thursday too heavily who still face a general picture of prolonged low price inflation.
The US dollar was mixed after personal spending increased 0.5% in August whereas personal income rose 0.3% indicating the consumer is digging into their savings and that current consumption levels may not be sustainable.
The RBNZ revealed that it had intervened in the currency market in August selling 521 million NZD.
The direct intervention in the market shows intent from the New Zealand authorities to weaken the currency. John Key the New Zealand Prime Minister, a former FX trader said fair value is 0.65, a fair bit lower than current levels around 0.77.
The NZD/USD had already fallen from multi-year highs after the central bank paused its series of rate hikes so the intervention seems odd timing when the currency rate was already on the way down.
Commodities
Gold was directionless after having stalled out at $1,210 per oz twice last week; the precious metal may be set for a tight trading range ahead of the ECB meeting and NFP on Friday.
Silver is trading lower alongside industrial metals including iron ore more than it is gold right now; having broken its 2013 low traders long the market are starting to capitulate.
Brent Oil is seeing further declines today while WTIl remains flat bringing the Brent-WTI spread in even tighter with a difference of just $2.
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