Events in US and China to Influence Sentiment Near Term
As we head into November, we can see a number of significant events likely to influence market prices in the near term. Here we will look at some of the most critical aspects of the global economy to get a sense of where we are headed for the remainder of 2012.
US Markets to be Impacted by Hurricane Aftermath, Presidential Election, and Corporate Earnings
Equity markets in the US are experiencing a volatile period, as a confluence of conflicting events is affecting share values and leading to some significant market fluctuations as we head into November. Stock markets in the US are trying to regain momentum after trading floors were closed for two days, following the much publicized “Frankenstorm,” which caused damage that is estimated to be as high as $45 billion.
If an event like this was not enough to influence market prices, this month’s presidential election will add another element to the mix. Historically, however, a change of leadership tend to act as a positive catalyst for market values: Since 1926, the S&P 500 has rose an average of 14.5% in the years a Democratic president has been elected, while the index has seen gains of 18.8% in years a Republican wins the presidential election. This optimism, however, could be tempered by the overhang of Hurricane Sandy, as the true extent of the damage has yet to be assessed and the general public remains skeptical of the ability of the government to properly deal with the situation.
But the final (and likely most important) factor to influence stock values in the US will continue to rest on the performances seen in 3rd quarter earnings results. Thus far into the earnings season, quarterly results have been relatively mixed, with a slight majority (60.7%) of the companies that have released earnings producing results that were stronger than analyst expectations. But this information should be weighed against the fact that only 44.8% of these companies managed to improve on revenue estimates, and this is the lowest percentage seen since 2009.
Chinese Manufacturing Improves for the First Time in 3 Months
In China, the manufacturing sector showed growth for the first time in 3 months, as the Purchasing Manager’s Index (PMI) moved higher to come in at 50.2 for the month of October (a slight improvement on the 49.8 reading seen in September). The improvement is significant because numbers over 50 in this survey suggest that an expansionary environment (rather than a contractionary environment) is in place.
These figures are particularly important for the Australian economy (influencing the AUD/USD), given the fact that any slowdown in these areas will likely lead to declines in commodities exports out of Australia, so investors will be paying special attention to any developments in these data reports in order to determine whether or not this latest information is indicative of a wider trend for the Chinese economy, and likely to continue during the remainder of 2012.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.