There is an old phrase the market moves in the direction that offers traders the most pain, and Wednesday may be another day illustrating the point. The list of brickbats contributing to negative investor sentiment was getting longer every day, from the uncertainties in the Middle East, the Ebola virus spreading into Europe, along with commentators now suggesting the weakening oil price is symptomatic of a global economy on the brink of recession. The protests in Hong Kong seem to be dying down, but uncertainties over the Chinese economy and political unrest remain, (despite slightly more encouraging data overnight from the region). The IMF added to the list of concerns as it released its latest review of the global economy lowering its growth forecasts for 2014 and 2015. Despite lowering expectations for economic growth next year, they still believe the global economy will grow at 3.8% in 2015. Whilst global inflation remains in check that does at least mean the global economy is rowing in real terms if at a reduced level. The bears were definitely in full picnic mode; it was hard to see where the good news was coming from.
The Federal Open Market Committee released the minutes from the last meeting at 715 UK time. Far from preparing investors for the prospect of an interest rate rise, adding to the gloom, the minutes caused a sharp reversal as the Dow Jones index rose over 200 points. The rise seemed to be caused by the comments that the FOMC were concerned the strength the strong dollar would have had on staffing numbers. The US dollar that has given back some of its recent gains, lost ground again post the release of the minutes.
One can debate the merits of the lower growth expectations against reduce interest rise expectations, but what will bring comfort is a solid outcome from the earnings season. Alcoa after hours released third quarter earnings of 31 cents per share against expectations of 23 cents. It never ceases to amaze how quickly sentiment can change, at one stage the vix rose to 18 on Wednesday, by the close of play on the back of a more dovish FOMC report, and a solid start to the earnings season it had fallen to 15.