Sell-off continues on weaker US data

Wednesday, October 15, 2014

Risk assets extended losses on Wednesday as concerns regarding global economic growth prospects continued to weigh heavily on investor sentiment. Data released overnight showed Chinese consumer inflation rose at the slowest pace in almost five years in September as prices increased by 1.6% y/y, slightly lower than expectations of a 1.7% y/y increase and slower still than the previous month’s reading of 2.0%.

The slowing price increases were a further sign that growth was faltering with many market participants speculating that Beijing would increase easing measures. Producer price inflation data added to the worries shared by a growing number of investors with factory gate prices falling 1.8% y/y in September, significantly more than the previous month’s reading of -1.2% y/y. The data shows wholesale prices falling at an increasing rate having been under pressure since early 2012, with the decline in core inflation indicating a slowing domestic demand outlook.

In a move congruent with the current global growth concerns front month Brent prices extended losses below $84/bbl for the first time since November 2010 today, trading as low as $83.37/bbl early on during the European session. After shedding 3.6% yesterday, posting a close just above $85/bbl, the pessimistic fundamental outlook saw selling pressure dominate throughout the entire session. With stable output continuing to add to the large supply overhand and the demand outlook progressively deteriorating Brent futures have lost over 27% since their year-to-date peak in June when prices briefly topped out above $115/bbl.

European equity markets traded considerably lower throughout the session as the CAC, DAX and London’s blue chip index traded lower from the outset. However, losses were compounded throughout the PM as a weaker opening on US equity benchmark indices dragged European indices lower. Markets continued to remain under pressure after less than impressive macroeconomic data which saw the Empire manufacturing index sharply miss expectations of a 20.25 reading, coming in at 6.17 in October while September retail sales slipped -0.3% and PPI final demand fell -0.1% against expectations of a 0.1% increase. At the time of writing, the S&P 500 and DJIA were trailing 1.6% and 1.3% lower ahead of the Fed Beige Book with today’s sell-off in the S&P 500 erasing its year-to-date gains.  

Chinese CPI falls once again 

CNCPIYOY Index China CPI Yoy 2014 10 15 12 26 13

Chinese factory gate prices face further drops

CHEFTYOY Index China PPI Yoy 2014 10 15 12 30 37

Front month Brent prices extend losses

CO1 Comdty Generic 1St CO Fut 2014 10 15 12 54 33

Empire manufacturing index drops sharply

EMPRGBCI Index US Empire State 2014 10 15 14 47 04

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