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.