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Daily Fundamentals


Fed on hold
Markets were subdued yesterday up until the point when the FOMC minutes were released. The tone was very much dovish, with concern of a China slowdown intensifying and an increase in downside risk. Equity markets rallied off the back of this news, to close approximately a percent higher. Data-wise it was mainly focused around the Fed and the justification of moving – or in this case, not moving – off zero this year. However, we did have data in the form of initial jobless claims which saw an improvement, falling 13k to 263k last week. In fact, this is the lowest level since July which shows further tightening of the jobs market and acts as a strong indicator of improvement in the US.

Oil prices continue to rally off the back of a weaker dollar which saw the DXY slip -0.5% after the dovish FOMC minutes. WTI finished up 3.39% to push back above $50/bbl where we are seeing signs of good support at this level. Brent also pushed higher up (3.35%) to its highest level in over two months. Gold prices also saw a positive uplift to hold around $1152.29/oz. However, aluminum prices are softer after Alcoa announced its earnings last night, revealing that profits were down -77%, and sales were down -11% after weaker demand from emerging markets. Looking ahead we can expect further rhetoric from the Fed which has been giving conflicting messages as we wait for further clues on when we can expect the timing of the hike. Yesterday the FOMC issued a dovish tone, but also stated the December is still viable option – we have all heard this before.

BoE to hold, FTSE rallies
European stocks rallied after the BoE left interest rates unchanged after concerns of a Chinese hard landing. The BoE think the situation in China will worsen, with an 8-1 vote to remain on hold. However, Ian McCafferty was the only member to dissent and preferred to increase bank rate by 25bps. The equity market rallied off the back of the dovish sentiment, coming out strong after the worst third quarter since 2011. In fact the FTSE is rallying, having its best week in over seven months with bulls returning in force for Q4, rallying off the back of Central Bank uncertainly before a trigger is pulled. Data-wise again we saw weaker numbers coming out of Germany in the form of the trade balance. The numbers were disappointing with exports slumping during the month -5.2% mom vs -0.9% expected, which was the largest monthly drop since 2009. This is causing concerns for the ECB as they maintain the current QE program despite calls to increase the monetary easing.

Rally in Asia
Asian markets rallied off the back of further global monetary easing from the three major Central Banks. It was green across the board in Asia with the Shanghai Composite up (+1.27%), the Hang Seng marginally higher (+0.46%) and the Nikkei up (+1.64%). Also this morning we are seeing an increase in risk appetite with emerging currencies rallying, which are experiencing a two-month high – which has not been seen in over six years. However, skepticism about the advance comes in part from the darkening global economic outlook from the IMF, Fed and the BoE. Some contrarian investors such as Franklin Templeton’s Fund Manager Michael Hasenstab sees the recent volatility as longer-term investment opportunities – however, others are not still convinced.


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