UK & Europe
A sharp fall across the commodity complex following hawkish comments from Fed officials and data showing Chinese credit growth grew less than half of what was expected helped equities towards the biggest fall this week.
European stocks broke to a new low for the week, continuing a pattern of one day up, one day down. The Euro Stoxx 50 fell to the lowest since November 2nd at 3383.
After three days of feeble attempts to hold its sideways price range, the FTSE 100 fell to a five-week low on Thursdaydriven by weakness in commodity stocks and a shock-drop in Rolls Royce (L:RR) shares after a profit warning.
Stocks opened initially lower following disappointing Chinese credit growth figures that came in below half of expectations. The credit growth slowdown is in spite of numerous policy measures intended specifically to boost it and spur stronger growth in the economy. The risk is that Chinese authorities reassess the effectiveness of the tools in their kit and steer away from the so far ineffective rate cuts towards currency devaluation which should help exports.
There was some semblance of a move to risk-on when ECB president Mario Draghi sent the euro to three month lows versus the pound during a dovish testimony at the European parliament. Really, Mr Draghi didn’t say anything that hasn’t been said already and stocks rolled back over. There has been unconfirmed talk of the ECB buying municipal debt including bonds from cities like Paris and regions like Bavaria. Mr Draghi’s failure to mention municipal debt purchases probably reflects the lack of time to draft such a new policy measure before December. The net effect is markets have nothing new to work with.
Southern European equities including the Spanish IBEX fell as a general strike in Greece, indorsed by the government, coupled with the likely election of a socialist government in Portugal weighed on hopes that nations in the region can follow-through on tough reforms and austerity policies.
Rolls Royce was the biggest drag on the FTSE 100, down a record record-breaking 20% after another profit warning.
Shares of mining companies Anglo American (L:AAL) and Glencore (L:GLEN) dropped as much as 10% as fell copper fell deeper into six year lows. Brent crude oil touching its lowest point since the commodity rout in August sent the oil and gas sector lower with Royal Dutch Shell (L:RDSa) falling over 3.5%.
BAE Systems (L:BAES) was one of the few risers on the UK benchmark on news the defence contractor will cut jobs working on its Eurofighter Typhoon in order to tackle lower than expected annual earnings.
US
US stocks fell on Thursday’s open with the Dow Jones dropping below 17,600 and its 200 day moving average to make a two-week low. Energy stocks Exxon (N:XOM) and Chevron (N:CVX) were leading the declines while Kohl’s, which beat third quarter earnings estimates went some way to offsetting concerns over the retail sector following the disappointing results from Macy’s.
FX
The Dollar was mixed on Thursday reflecting a generally hawkish tone from Fed members Bullard and Lacker which were offset slightly from concerns over inflation from Evans.
The euro dropped briefly to three-month lows versus the British pound while EUR/USD fell below 1.07 after another confirmation from ECB president Mario Draghi that the ECB will re-examine its stimulus program in December. Nothing especially new was said so the euro ended the day essentially unchaged.
The Australian dollar was top FX riser after a surprisingly strong employment report. AUD/USD made a four-day high above 0.71 but remains in a downtrend since peaking in mid-October.
Commodities
Gold plummeted to 3 ½ month lows, narrowly avoiding a fresh six year low, oil dropped to its lowest levels since August and copper made a fresh six year low. Commodities were stung by a triple whammy of weak Chinese credit growth, hawkish Fed members and another bigger than expected build in weekly crude inventories.
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