October Week 3

     S&P 500 sparked up 4.24% this week with bright light from eurozone and China. China showed a stronger GDP than its forecast; it inclined by 7.3% YoY (forecast 7.2%). It shows that global economy in Q3 was stronger than what the market saw. The strong GDP implies that the world economy will rebound back in the following time period, which increases investors expectations along other issues. In the market on Tuesday, there was a rumor that the ECB will purchase corporate bond, which later claimed that it is not confirmed 'yet.' But this rumor was huge enough to impact on the market.

      Within the U.S. market, several companies showed unexpectedly positive earnings, which led to an increase of S&P 500. The UPS, Catapillar, Boeing Inc, Apple and P&G all showed high earnings while IBM, Amazon Coca-Cola and McDonald had an below-expected earnings. But those large companies with high earnings, low gas price, stabilizing job market and CPI led a market this week.

 


      Europe had a good week; the DAX increased by 2.03%, FTSE 100 for 1.38% and CAC 40 rose by 3.15%. Like the U.S. market, the EUwas affected by China GDP and rumor of the ECB corporate bond purchase. Along that, strong PMI in Germany and EU led the market this week. The markets finally started to bound back.

     Last week, one of the reasons EU markets declined was from Germany that its ZEW Economic Sentiment unexpectedly fell down (actual was -3.9 compared with 6.9 previous month). Yet this week Germany showed a strong PMI of 51.8 (forecast 49.5). The EU Manufacturing PMI was 50.7, which was also higher than the forecast of 49.9. Those strong economic indicators led the market increase. Also U.K. GDP resulted as 3.2% increase in this quarter, which is declined by 0.2% from previous quarter. Yet this 3.0% increase still meets the government target, it had a limited affect on the market this week. With stabilizing housing price and retail sales, U.K. market seemed to follow EU economic sentiment.

     This week's global issue came from Asian market. The above-expected China GDP helped the U.S. and Europe but not Asian markets.

     The Shanghai Composite Index declined by 1.87% this week as the strong GDP and labor market suggested less government stimulus in the market. The reason the Chinese government considered additional stimulus in the market was they were worried about slow economy, especially in manufacturing sector and real estate market. Yet the strong GDP and labor market, and high PMI shows that the Chinese economy is doing much better than that they thought. As the expectations faded away, the Shanghai Composite Index declined with positive economic indicators.

 


     EUR/USD unchanged this week, and USD/JPY increased by 1.26%. The Japanese prime minister, Abe Shinzo, stated this week that they might postpone sale-tax increase. Along with the current government policies, it had a positive impact on the market to depreciate the JPY.

 

October Week 2

     S&P 500 declined by 1.13% this week. It hit the new low of 200-day average of 1,882.99 on Wednesday as German Economic Sentiment significantly declined due to continuing geopolitical risks from Russia and Ukraine, and Drgahi's speech that it is unlike to implement quantitative easing in a short period. Even the ECB is exercising ABS program, but it is hardly affecting the market. The other reason is decline in oil price. The price of crude oil declined by almost 30% compared with its peak 3 months ago. It had the largest drop of 3.76% on Tuesday. There are high supplies of oil as OPEC expected high economic growth in the third quarter. But the reality is that Europe and China are still suffered from recession that the demand of oil far behind than what they expected.

     

     Speaking of the European market, there was no sign of improving. The ECB expected the bank to increase money supply by purchasing bad assets, the ABS program, but there was no significant impact on the market. In the past, the market continuously improved with poor economic data is that the investors expect the ECB to implement actual quantitative easing. As the expectation faded away, the investors were afraid of higher deflation risk, as EU CPI stagnated even after the ABS program.

     However, there was bounce back at the end of the week as positive economic data came from the U.S. market. It showed that U.S. economy is still improving with high consumer spending, and strong housing and labor market. The stronger USD also explains that there are more investors involved in the market. The most important issues were speech from the president of the Deutsche Bundesbank, Dr. Weidman, and the president of Federal bank OF St. Louis, James Bullard.

     The president Weidman stated that the deflation risk in Europe is temporary from the low oil price. Even he disagreed with the quantitative easing, his speech was good enough to ease tensions in the market. President Bullard stated on Thursday that the Fed. should delay the quantitative easing. Since the Fed. considered to exit the quantitative easing last meeting, his speech strengthened the market.

     Despite global deflation risk, especially Europe and Japan, China's market is outperforming other countries. The main reasons are recent quantitative easing implemented by the PBOC and high demand of goods from the U.S. consumers. The manufacturing sector of China is also boosted by low commodity price. Even the low commodity price implied the low demand of goods, but it is a good news of China as they can get the resources with lower price. Besides, the investors expect more stimulus from the central bank as its CPI and estimated GDP are below the target.