So finally and after much debate, ‘T’ day could be here, ‘tapering day’. The volume of commentary published regarding; “will they won’t they, if so when?” has been considerable over recent months. However, during the latest two day meeting of the FOMC (the Fed) beginning today the investment community has strong convictions that tapering of the combined $85 billion monthly will be announced.
The predictions are that overall the FOMC will announce a reduction of $10 billion per month. If the USA equity markets are regarded as a patient, who’s suffered a major illness, then the Fed wants to wean the patient off its medicine gradually. Impacting the equity markets as little as possible, without hurting the dollar and without causing too much disruption in the bond markets and it’s an incredibly difficult conjuring act to pull off.
Given that the majority of market analysts and commentators will testify to the fact that the recent all time highs experienced on many of the indexes (in the USA and Europe) is entirely due to the asset purchase schemes, the problem appears to be insoluble. Reducing the patient’s medicine and expecting our patient to stand up on his or her own two feet, is surely impossible without some short term pain in the form of a shock adjustment. Still there are analysts out there who will adamantly contest that the initial tapering is already ‘priced into’ the markets and the initial reduction will cause no more than a short term blip. What is for sure is that the time is rapidly approaching when the Fed will have to allow the patient to go ‘cold turkey’.
European car sales slump
Europe’s car industry has suffered another shocking month as sales in automobile industry has slumped to an all time low.
Fewer cars have been sold than in any year since 1990, according to data from the European Automobile Manufacturers Association published this morning. New registrations have fallen by 5.2% since January, to just 7,841,596 units across the whole of Europe. New passenger car registrations have declined by 5.0% in August compared with a year ago, reversing the 5% jump in July. Demand dropped in all major markets.
The UK was the only major market to post growth in August, with sales jumping by 10.9%. Germany contracted by 5.5%, Italian sales are down 6.6%. French car sales suffered a double-digit decline, falling by 10.5%, while the Spanish market fell by 18.3%.
Peugeot Citreon’s sales are down by 12.3% so far this year. Fiat are down 8.6%. Volkswagen sales have dropped by 4.6%. Jaguar Land Rover bucked the trend with a +10.0% rise in sales between January and August.
UK inflation in line with expectations of the economists polled
The consumer inflation report for the UK has come in as predicted at 2.7%, a drop of 0.1% from July, however, retail price index has risen to 3.3% from 3.1% in the previous month.
Market snapshot at 9:30 am UK time
In the overnight/early morning session the Nikkei index closed down 0.65%, the Hang Seng closed down 0.46% whilst the CSI closed down 2.06%. The ASX 200 closed up 0.06%.
Looking at European markets the majority are in the red. The STOXX down 0.26%, the FTSE down 0.28%, the CAC down 0.27%, DAX down 0.19% having reached a record high yesterday, the Portuguese index the PSI is down the most by 0.88% so far on the day.
Looking towards the New York open the DJIA equity index future is currently down 0.07%, the SPX down 0.14%, the NASDAQ equity index future is down 0.10%.
Commodities have experienced mixed fortunes in the morning session; ICE WTI oil is down 0.50% at $106.07 per barrel, NYMEX natural up 0.64% at $3.76 per therm, whilst COMEX gold is up 0.14% at $1319.70 per therm and spot silver up 0.16% on COMEX at $22.04 per ounce.
The dollar traded at $1.3349 per euro early in the London session after depreciating to $1.3386 yesterday, the weakest level seen since Aug 28th. The U.S. currency rose 0.1 percent to 99.19 yen after weakening 0.8 percent over the past four days. The euro rose 0.2 percent to 132.42 yen. The dollar has declined by circa 0.7 percent in the past week, the worst performer of 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indexes. The yen rose 0.6 percent, while the euro was little changed.
Sterling gained by 0.1 percent to $1.5915 early in the London session after rising to $1.5963 yesterday, the highest level seen since Jan 18th. The U.K. currency was little changed at 83.86 pence per euro after appreciating to 83.57 pence on Sept 13th. The pound has risen by 6.9 percent during the past six months, the best performer amongst the ten developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indexes. The dollar has gained 0.9 percent and the euro has advanced by 3.3 percent.