The surprise rise in the US University of Michigan sentiment survey to its highest level in 5 years provides a better backdrop for asset markets at the start of the week although the follow through is likely to be limited. Chinese exports data may help sentiment its worth noting that Chinese imports were weak. Overall, it appears that the appetite for taking on equity risk is easing as prospects of disappointing US Q3 earnings and lingering growth concerns weigh on sentiment.
Markets may nonetheless, be given some encouragement from economic data this week including likely gains in September US retail sales, industrial production and October Empire State and Philly Fed manufacturing surveys. This will be echoed in Europe, with a second straight increase in the German ZEW investor confidence survey expected to be revealed in October. While the data will do little to ease global growth concerns it will at the very least suggest a renewed downturn is not on the cards.
Economic data may however, take a back seat once again as attention will turn to political developments around the EU Council meeting on 18-19 October. Any major developments are unlikely to emerge from the meeting although Spain and Greece will be on high on the agenda. The lack of progress in the eurozone towards a bailout in Spain and the distribution of Greece’s next loan tranche will once again restrain any positive tone to markets, leaving most asset markets within ranges.
Currencies do not look as though they are about to break out of recent ranges. Nonetheless, the USD will likely continue to edge higher against the background of growing cautiousness towards risk assets. Indeed, there has been some major short covering in the USD over the past week as reflected in CFTC IMM data and I expect the trend to continue as QE3 USD fears increasingly fade. Conversely, EUR short positions are building up once again and the lack of traction towards resolutions in Spain and Greece, point to growing EUR downside risks in the days ahead.
About Mitul Kotecha, author of the forthcoming Chronology of a Crisis
I have worked in the financial industry as a strategist/economist for over 18-years in several corporate and investment banks in London. I have covered a range of financial products including bonds, interest rates, equities and foreign exchange.
I am currently working in Hong Kong for Crédit Agricole Corporate & Investment Bank, where I am the head of global currency strategy, in charge of a team of analysts providing research and strategy for the bank’s clients and internal trading and sales teams.
I hold an honours degree in economics and a masters degree in economics and finance and have developed a comprehensive knowledge of economic and financial theory during my studies and in my employment.
I am regularly consulted by the press/media for my views on markets and economies appearing regularly on business channels such as CNBC, Bloomberg TV, Channel News Asia, and Reuters TV. I am also regularly quoted in various newspapers including the Financial Times and Wall St. Journal as well as various newswires including Reuters, Bloomberg, Associated Press, Dow Jones and many others.