Equity markets, which having failed to push on over the past few days, took a step backwards on Thursday. The catalyst appeared to be China’s weaker than expected January manufacturing report, as produced by HSBC. The figure came in at 49.6, down from 50.5 in December — a figure below 50 signals a contracting economy. In contrast Europe’s manufacturing data continued to show signs that the Eurozone economy is recovering. Within Europe the report highlights the difference between the performances of the two Northern economies; as the German economy continues to gather pace, France continues to lag.
US treasury yields, which many feared would rise sharply as the FED started to taper, continue to fall. The fear is now that the fall in ten-year treasury yields indicates that the US bond market believes that the removal of government bond purchases will coincide with a weakening of the US economy.
After Wednesday's UK employment data, papers are dissecting Mark Carney’s interview comments from Davos. Most seem to agree that he has effectively abandoned the forward guidance for raising rates when unemployment reaches 7%. The question will now be if he resets the bar lower, by how much? Citi brought forward their estimate for the first UK rate rise to Q4 2014.
The FT reported yesterday that a survey conducted by Factset concluded that capital expenditure by US companies is set to grow at the slowest rate in 2014 since the economic recovery started in 2009. Capital expenditure by companies did pick up sharply after 2009, and has slowed since 2012. Some see this report as highlighting the continued caution by CEOs despite the improving economic outlook.
The Vix, as one would expect, rose as the market fell, but as I write this remains below the psychological 15 level. Traders will now look for levels that should offer market support. Regulars will know that many traders look to the 50 day moving average. For the FTSE 100 that is about 1% lower at 6690, and for the S&P 500 just under 2% lower around 1790.