Another shake out for equities on Tuesday, as investors appeared to prefer the security of bonds after a mixture of indifferent macro data and increased geopolitical tensions. We have discussed on more than one occasion how market analysts take the results of the monthly Markit purchasing managers surveys to estimate whether economies are expanding or contracting. A figure above 50 is taken as indicating an expanding economy and a figure below a contracting economy. The strength of China's economy continues to focus investors minds and there was a little reassurance on Tuesday as the Markit manufacturing PMI came in a 50.5, slightly above expectations. This initially reassured investors after Monday's comments from China's finance minister that dampened down speculation the Bank of China was looking to further stimulate the Chinese economy. Later in the day came the European surveys, the readings were best described as "mixed", but managing to remain above the critical 50. France continues to disappoint as the latest GDP report showed that the final year on year 2nd quarter growth rate was 0.1%, this was against expectations of 0.3%.
The US initiating air strikes on Syria did not help investor sentiment and these events often do have an initial shock impact. These latest Middle eastern events continue to have limited impact on the oil price as Brent crude continues to trade close to its recent lows. Middle Eastern tensions such as these one would have traditionally expected to see the oil price to rise, but it appears a combination of falling demand and an increase in shale gas production continues to put a lid on the price.
Tuesday's Markit euro area data will probably not dampen down expectations from those who anticipate the ECB will launch full blown QE. We remain sceptical, as although the data is hardly showing a thriving economy, overall it was in line with expectations even if those expectations were not over demanding. While that is the case the ECB will hope and expect the recent measures introduced will do enough to kick start the euro zone economy.
A lot of speculation surrounds what the Federal Reserve's definition of "considerable time" is when referring to rate policy, we would not mind having a small wager that even for them it is struggle for a definition. We continue to hold the view that whilst we may not see further stimulus from central bankers, we will not see a material tightening of monetary policies around the globe, households and governments should therefore continue to benefit from these extended low rates for a considerable time.