A mixed session on Wall Street saw the Dow book its first win in three sessions, although gains were capped by rising interest rate fears; the S&P closed flat and the Nasdaq dropped a further 0.6%. The Nasdaq experienced heavy losses for a third straight session as a combination of growing global growth fears and a potential Google (NASDAQ:GOOGL) data exposure saw investors jump ship.
IMF Cuts Global Growth Forecasts
After a mixed session on Wall Street, Asian market were also mixed. The IMF cutting its global growth forecast for 2018 and 2019 is not that much of a surprise given current conditions. The first downgrade to growth in two years comes amid capital outflows from emerging markets and increased trade tensions between the world’s two largest economies. The US economy is firing on all cylinders right now.
This makes the IMF prediction that US economic growth will decline feel like a distant problem, but the reality is that once the boost from the tax cut works its way out of the system, the impact of trade tensions with China will be laid bare.
US Concerns Over China’s Devaluing Yuan
Chinese stocks firmed in early trade on Tuesday after shedding over 4.3% at the start of the week. With the Chinese market no longer in free fall attention turned to the yuan, which China allowed to slip past a key level versus the dollar.
With the Chinese economy under pressure and trade tensions still riding high a devaluation from the Chinese towards the 7 level wouldn’t be that surprising. Obviously, this will provoke further currency manipulation accusations from the US, but so far that has done little to deter China. Overnight’s souring risk sentiment saw flows into the safe haven yen increase pulling it off an 11-month low of 114.55 versus the dollar last week.
Pound Steady Despite Consumer Spending Slowing
The pound was showing signs of resilience despite the British consumer turning more cautious in September. After an extended summer spending spree, the UK consumer is once again reining in their spending. This means that the UK economy will not be able to rely as much on the UK consumer to soften the Brexit drag. Shops reported that spending increased 0.7% year on year last month, its slowest rise since October last year.
After the summer heatwave and World Cup pulled consumers onto the high street a slowdown in spending was to be expected as consumers balance their budgets.
Opening calls
FTSE to open 27 points higher at 7250
DAX to open 28 point higher at 11975
CAC to open 16 points higher at 5316