The roller coaster ride continues

Developed equity markets resumed there correction phase on Tuesday, as the Chinese manufacturing data took the blame. The index reading of 49.7 is supposed to represent a contracting manufacturing base, on a positive note this figure was no worse than the market had forecast. Chinese equities took the news far better than many developed markets, falling only modestly on the day.


Equity markets also continue to face the uncertainty of what the Federal Reserve may do in a couple of week’s time. We pointed out that US GDP growth for the second quarter came in better than expectations, and the Citi surprise index has been rising, suggesting that economic data is coming in ahead of expectations. The latest US manufacturing data on Tuesday came in line with expectations.


Federal Reserve Bank of Boston President, Eric Rosengren, speaking to an economics group on Tuesday played a fairly straight bat in terms of committing himself in terms of timing. Mr Rosengren did reiterate comments last week that an increase in global turmoil argues in favour of caution. Mark Carney, the Governor of the Bank of England, on the other hand recently expressed the view that he believes the market turmoil should not impact interest rate decisions.


As JPMorgan in a research piece out on Tuesday said” bearish sentiment is growing everywhere”, however they did go on to say that in there view not all is gloom and doom. The recent IFO sentiment surveys remain encouraging, as does the eurozone Purchasing Manager readings. Morgan Stanley strategists on Tuesday believe that European equities are already discounting zero earnings growth.


The oil price has been much of a focus recently, last week oil rallied sharply. A weak oil price to many is considered a reflection of weak global demand and therefore a weak global economy. The weak oil price does also benefit consumers, as well as reducing inflationary pressures. The recent recovery has been put down to more possible supply side changes than an increase in demand. A rise in the oil price may boost sentiment to the Emerging Markets; it may also push investors to believe it increases the chances Federal Reserve moving on September the 17th.


Currently equity sentiment is shifting daily if not almost hourly, as last week was a perfect demonstration. Equity prices do not like uncertainty and there is still plenty of that about. At these times investors are often happy to sell first and ask questions later. Last weeks fund flow data reporting more than $19bn of equity redemptions a perfect example. As Warren Buffet often points out, equities are one of the few assets that investors are happy to sell when the price is lower!  

Posted on September 2, 2015 .