Weekly Market Highlights October (1)

Source: Amp Capital (here for full market update) & iCapital biz (subscription required)

Boom or Bust?

The past week has seen a real roller coaster ride for shares, with sharp falls early in the week. Worries about Chinese/global growth and the Federal Reserve’s (the Fed’s) interest rate decision helped initially push the US share market back down to near its August low, which in turn pushed several markets to new lows. However, shares rebounded mid-week from oversold levels, with US shares given a big push along on Friday by expectations that softer than expected jobs data for September will further delay Fed tightening.

While October is likely to remain volatile, with the risk of further weakness, it’s also likely to see share markets end higher as the cyclical bull market in shares resumes into year end before the major holiday season. Shares are cheap relative to bonds; monetary conditions are set to remain easy; this in turn should help see the global economic recovery continue; and finally investor sentiment is around the levels of pessimism that provides great buying opportunities or a possible bust?


United States
US economic data continued to point to an economy with growth averaging around 2-2.5% pa. No boom, but no bust either. On the solid side consumer confidence surprisingly rose in September (despite share market noise), vehicle sales rose to their strongest in 10 years and construction spending rose more than expected.

Soft US payrolls for September mean no chance of an October Fed rate hike and a December hike is 50/50. The failure of wages growth to pick up much, despite the fall in unemployment, suggests that the so-called NAIRU (non-accelerating inflation rate of unemployment) is lower and that deflationary pressures remain intense.

US Government shutdown averted for now. US Congress passed a bill extending US Government financing out to December 11, averting the threatened October 1 shutdown. Of course this just means that the issue will now come up again later in the year when it will get rolled into the need to raise the debt ceiling again, which now looks like being reached by November 5.

Eurozone
Eurozone economic data remained pretty good, with overall economic sentiment in September rising to its highest in more than four years and at a level consistent with a pick-up in growth. While CPI inflation went negative again in September, at -0.1% year on year, core inflation was unchanged at 0.9% and on its own this is not enough to move the ECB to step up its quantitative easing program. 

While Catalan pro-independence parties won a majority of the seats in the Catalonian regional election in Spain, they failed to receive a majority of the vote indicating that the case for independence has not been advanced.

Asia

Japanese economic data was mixed with weak industrial production and the Tankan business survey showing softer conditions for manufacturers but against this stronger housing starts, continuing solid jobs data, stronger household spending and the Tankan survey showing stronger conditions for non-manufacturing businesses.

Further stimulus from China and potential signs of growth bottoming. News early in the week that Chinese industrial profits fell nearly 9% over the year to August didn't help share markets, but thereafter the news out of China improved a bit. 

Firstly, China is continuing to announce more stimulus measures; in particular a sales tax cut on small cars and another reduction in the required deposit ratio for first home buyers.

Secondly, economic data took on a slightly better tone, with consumer confidence rising to its highest since May last year, the official manufacturing PMI rising slightly in September, the Caixin flash PMI being revised up and average home prices continuing to rise in September. While it’s hard to see a big rise in Chinese economic growth, the downside risks may be starting to recede a bit.

**Repeat "again" with tiny modifications**

Share markets are likely to see more volatility in the next month or two. We are still in a seasonally weak period of the year for shares (Sept and Oct), uncertainties regarding China and the emerging world are likely to intensify in the short term, posing risks for global growth and the uncertainty around US Fed moves. 

Closer to home, same old story. I've been talking it over many past weeks:
Aug 22: Alarming Figures of Malaysia's Debt Problem
Aug 16: Stuck in the Middle of Nowhere

Aug 8: Weekly Market Highlights August (1) - Special Malaysia Highlights
Aug 5: The Risk of Holding Ringgit is Skyrocketing, WTB Donations
July 26: Sunday Lite: Flip Flop In Malaysia's Property Market

Aug 8 post has a section on What You Can Do with your MYR. I'm inclined to say that our financial woes will continue until we get more clarity on our 2016 Budget coming October. That's still a month ahead and likely not that any good news will come out. I also heard some rumors about GST but I cannot share - later kena charge for false information :) I will end this after Budget 2016 is announced.

The MYR touched a record 4.48 to the USD for the past week. Due to this it was not difficult to forecast a oil price hike at the pumps. I missed out my post on Major Economic Indicators which I will post soon.