European Markets Cast Global Pall

European Markets Cast Global Pall

The gloomy cloud that has been persistently hanging over the financial markets in recent weeks is the ailing European economy and this familiar issue has been one of the factors in play today.



European Markets Cast Global Pall
European Markets Cast Global Pall

The Ifo Institute today published its business climate index, which seeks to gauge how businesses view economic conditions in Germany, both current and the outlook for the future. The index declined for a sixth successive month in October, creeping down to 103.2 from its level in September of 104.7. The current conditions component and the business expectations component  both fell, and this raises some concerns over how fourth-quarter German GDP might look, which in turn has negative implications for the eurozone economy as a whole (Germany accounts for roughly a fifth of eurozone GDP).

Not all the news has been bad on the European front, though, and the downbeat Ifo survey was offset to some degree by the findings of the ECB stress tests, which gave a clean bill of health to Europe’s largest banks and by early afternoon in New York, the euro was up 0.25% against the dollar at 1.2705, thought he shared currency did lose aground against most other major currencies.

The dollar has weakened for a second day running amidst some mixed macroeconomic data just ahead of the start of the October FOMC meeting.  The October ‘flash’ reading for the services PMI came in at 57.3, still well into growth territory, but a slightly lower pace of growth than the 58.5 reading indicated at mid-month September and the 58.9 seen at the end of September. New business growth slowed, which doesn’t augur too well for future readings, but employment remains a positive, staying steady at a three-month high.

A separate report from the National Association of Realtors (NAR) provides further evidence of recovery in the housing market. The NAR’s pending home sales index improved by 0.3% in September to a level of 105.0, providing agreement with other recent indicators that suggest lower mortgage rates and easing house prices are helping to build momentum in the housing sector. Data released last week showed rises in both new home sales and existing home sales during September. The Case-Shiller Home Price Index for August is due to be released tomorrow.

Stock prices in New York spent the morning in the red, but by mid-afternoon had pared back most of their losses, with the S&P 500 down 0.25% or 5.0 points at 1959.6, and the Dow Jones Industrial Average off by just 0.06% or 10 points at 16,795. Dow component Merck ($MRK) slid 2.65%  after the pharmaceutical giant reported a 4% decline in third-quarter revenue compared to a year ago, missing estimates, though the company did beat forecasts with its earnings for the quarter. Facebook, Pfizer and DuPont are some of the companies reporting tomorrow.


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