Europe
A lowered growth outlook from the EU hit European stocks where it hurt on Tuesday while a drop in construction data hit housing stocks and plummeting Crude Oil prices weighed on the heavily weighted energy sector in the UK.
The EU predicts GDP will rise by 0.8% this year and 1.1% in 2015 down from expectations of 1.2% and 1.7% in the previous forecasts from May. Inflation is projected to be 0.8% in 2015.
The EU forecasts in themselves probably aren’t worth the paper they’re written on but do serve to reinforce the string of poor data out of Germany and notably France and Italy in recent months.
European benchmarks slumped by as much as 10% from the highs during October and have rallied back but fundamentally not much has changed in Europe. The weak outlook was demonstrated by the missed October manufacturing PMIs yesterday, the prospects for tomorrow’s service PMI reports don’t look much better.
Given the economic slump, the case for new highs in European equities this year centres almost entirely around new stimulus from the ECB either in this Thursday’s meeting or the last one in December. The ECB have already dropped interest rates to a record-low of 0.05% and began buying covered bonds and ABS but lowered growth outlook opens the door for more.
Imperial Tobacco Group (LONDON:IMT) was a top riser after it boosted dividends by 10% following an increase in demand for key product lines.
Legal & General Group (LONDON:LGEN) surprised with strong annuities sales in the first three quarters of 2014 despite government efforts to open up the pension system.
US
Investors were holding pat waiting for mid-term election results as stocks look to continue the consolidation around record highs made on Friday. The US trade deficit widened by more than expected thanks to a drop in exports fuelling concerns over the impact of a stronger dollar on US economic and corporate growth.
Alibaba (NYSE:BABA) shares were on the up after the company reported stronger than expected revenue growth while meeting EPS estimates in dollar terms. Shares have moved to over $100 since its IPO on the prospect of future growth stemming from large M&A activity especially inside Hollywood.
While investors are interested in future expansion, it is domestic performance inside mainland China namely revenue and transaction growth from its websites Taoboao and Tmall that are generating the earnings.
Michael Kors (NYSE:KORS) beat estimates but a decline in same store sales saw the stock move lower.
FX
The US Dollar weakened on Tuesday after a disappointing US trade balance which dropped to a deficit of $-43.03bn in September. Exports have dropped thanks to the stronger US dollar reducing competitiveness of US goods and services aboard while imports from China have increased to record levels.
The impact of this trade report could be a downward trajectory for Q3 GDP and perhaps lower inflation if the US finds itself importing deflation from China.
USD/JPY fell back to below 113.50 after touching 114. There are a lot of calls for hitting the 115 handle but with risk being taken off the table in the form of the Nikkei 225 down substantially on Tuesday, investors may feel the BOJ stimulus is fully priced in.
1.25 for EUR/USD hangs in the balance before Thursday’s ECB rate-setting meeting.
Commodities
Gold is now trading in a tight $13 range replicating the price action from the 23rd to the 29th of October and may well remain so until Friday’s non-farm payrolls gives a better indication on future fed policy.
Oil prices plummeted by another 2% on Tuesday in Brent Oil and WTI contracts after Saudi Arabian Oil Co. stated that it will cut prices for all oil grades that is sells to the US in another indication the country does not plan to cut production to sure up prices.
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