After a solid stock market bounce on Monday, today has seen a return to a familiar deleterious pattern of concerns over global growth sending commodity and share prices sharply lower.
By Peter Martin
Tuesday, September 22, 2015
The heavy slides began before the US trading session, with heavy falls in European stock indices, including a 3.0% fall in both the German DAX and French CAC 40, while the UK’s FTSE 100 dropped 2.2%. These heavy falls were echoed to a lesser degree in early trading on Wall Street: shortly after the opening bell, the Dow Jones was off by 187 points or 1.1% at 16,323 and the S&P 500 Index was down 1.1% at 1945.0. US crude oil futures, meanwhile, slid more than 2% to $45.80 a barrel.
As with Monday, it’s a fairly light day for US macroeconomic news. The Federal Housing Finance Agency (FHFA) reported a solid increase in home prices for July. Its house price index rose a stronger-than-expected 0.6%, following a 0.2% gain in June, which took the year-on-year change up to +5.8%, which is the largest yearly change measured since April 2014. The positive aspect of today’s reports will help to offset to some degree the weakness seen in Monday’s existing home sales report, which showed a 4.8% decline for August. New home sales data is released on Thursday.
The US dollar has been boosted today after comments made yesterday by Dennis Lockhart, the President of the Atlanta Fed, stoked expectations that the Fed could yet introduce a rate hike this year. Mr Lockhart, who is a voting member of the FOMC, said the decision last week to leaves rates unchanged was ‘prudent risk management’ by the central bank to ensure recent market volatility would not hinder US growth, but said it was unclear whether the recent episode was just a temporary ‘spasm’ or a genuine shock to the economy. ‘As things settle down, I will be ready for the first policy move on the path to a more normal interest rate environment,’ he said in a speech in Atlanta. ‘I am confident the much-used phrase “later this year” is still operative.’ The dollar gained against all its major peers, with the exception of the safe-haven Japanese yen. AUD/USD fell 0.81% to 0.7074, while EUR/USD declined 0.39% to 1.1145.
One of the dollar’s bigger gains was against the British pound, GBP/USD dropping 0.63% to 1.5407, after the CBI’s Industrial Trends Survey showed a surprise decline for September. Manufacturing output growth fell for the first time in two and a half years, according to the survey, while exports orders declined to the lowest level in six months. The outlook amongst firms is also negative, with manufacturers indicating they expect prices to decline in the next three months. ‘Exports are the missing link in the UK recovery at the moment, with the strong pound squeezing manufacturers’ margins, even though lower commodity prices are helping to ease cost pressures,’ said Rain Newton-Smith, CBI Director of Economics. The results of the survey for September does not bode well for the UK economy heading into the final quarter of the year, and makes a rate hike from the Bank of England seem even more unlikely in the near term. The UK manufacturing PMI for September is released next week.
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