The major news out of the US was the Federal Reserve’s quarter-percent interest rate cut Wednesday. It was widely expected, and the market rallied on the news.
The US economy saw growth of 3.9% in the September quarter. This was above expectations of 3.1% and sparked hopes that the US economy is more resilient than initially thought. On the downside, consumer confidence hit a 2-year low. The reading came in at 95.6, lower than the expected 99.
The ISM Manufacturing index fell to 50.9, the lowest level since March 2007. This raised concerns that demand for raw materials could see a decrease.
The upcoming December interest rate meeting is now on the radar. The Fed fund futures is pricing in a 62% chance of a rate cut, up from a 34% chance on Wednesday.
In stock news, financials fell sharply as broker downgrades weighed on stocks. CIBC, which downgraded Bank of America, said it believes Citigroup will be forced to sell assets, raise capital or cut its dividend to shore up its capital ratios.
As anticipated, the Bank of Japan kept interest rates unchanged at 0.5%.
In Australia, global miner Xstrata has made a bid for nickel miner Jubilee. The offer from Xstatra was a 36% premium to the 30-day average price. Xstrata holds management’s 17.5% stake, making a rival offer unlikely.
Retail sales numbers in Australia for October were up higher than expected, increasing by 0.8% and making it more likely that the Reserve Bank of Australia will be forced to raise interest rates when it meets on 6th November. This would be the first time that interest rates have moved up in an election month. Australians go to the polls on 24th November.
The German unemployment rate has fallen to its lowest level since 1993. Unemployment is now at 8.7%.
Consumer prices in Europe rose in October to a 2-year high of 2.6%. This is well above the European Central Bank’s target of 2% and could increase the likelihood that the Eurozone is in for an interest rate hike.
The after-effects of the credit crunch are still being felt in financial stocks in the US and around the world. Commodities and currencies are now showing a strong correlation to equity movements so all eyes are on the US stock market to gauge other market trends. October has passed without any sign of a stock market crash, however the volatility does not appear to be settling down and we could be in for another rocky week ahead.
Head of Fundamental Analysis
HUBB Financial Group