Global Markets

Equities mostly retreated last week and month but advanced in the third quarter. While U.S. equities managed to increase on the week thanks to Friday's rally, most other indexes retreated as they were buffeted by problems in European banks including Deutsche Bank. Results for September were mixed with most indexes declining in Asia. However, in the third quarter, the indexes covered here advanced — the exceptions were the KLSE Composite and the PSEi.

Most trading during the week pivoted around whether OPEC would actually forge an agreement to cut production. Equities rallied and crude oil prices jumped after it was announced that OPEC countries had agreed to modest oil output cuts at their informal meeting in Algiers on Wednesday. This is the first such deal since 2008. But skepticism quickly set in as investors noted that details were few and the allocation of the production cuts would not be negotiated until OPEC's November 30 meeting in Vienna.

Now central bank speak has replaced actual meeting results as investors continue on their quest to know what the next move by the banks will be. Both the FOMC and Bank of Japan policy announcements are history and board members were out making their individual views heard. In the U.S., Fed speakers did not deviate from positions taken prior to last week's FOMC meeting. And speakers from the European Central Bank, Bank of Japan and Bank of England also offered their opinions on the current state of their respective central bank policies.  

Global Stock Market Recap

Europe and the UK

Equities declined on the week but were mixed for the month of September. On the week the FTSE slipped just 0.1 percent while the CAC was down 0.9 percent, the DAX retreated 1.1 percent and the SMI lost 1.6 percent. The FTSE was the best performer for the month, gaining 1.7 percent. The CAC was up 0.2 percent while the DAX and SMI each lost 0.8 percent. For the year to date, only the FTSE — up a healthy 10.5 percent — is in positive territory.

Deutsche Bank sent bank stocks reeling after the U.S. asked the bank for $14 billion to settle claims that it mis-sold securities a decade ago. But stocks reversed direction Friday as worries over the health of European banks diminished after it was rumored that Deutsche Bank is nearing a less-costly settlement with regulators than investors feared.

Speaking in the German parliament Bundestag, ECB President Mario Draghi said, "The ECB is vigorously counteracting risks to price stability using all necessary tools within its mandate." He also said that low interest rates are necessary today for a return to higher rates in the future and other policy areas must contribute much more decisively to reap the full benefits of monetary policy. And on the same day, Bank of England Deputy Governor Minouche Shafik said that the UK would need more monetary policy easing at some point to avoid a more pernicious economic slowdown in the wake of EU referendum. Further she said that the likely timing of stimulus will depend on the continued evolution of the data over the coming weeks and months. In other words, the BoE is data dependent. So far, data suggest that the slowdown may not be as sharp or as sudden as feared earlier.

There were a slew of economic indicators released during the week. In the euro area, the flash harmonized index of consumer prices climbed 0.4 percent from a year ago. Private sector credit increased along with economic confidence. In Germany, the Ifo business climate improved. However, Germany's retail sales declined while its number of unemployed increased and consumer confidence slipped. In the UK, second quarter GDP was revised upward, Nationwide house prices increased and Gfk consumer confidence improved.

Asia Pacific

Asian equities were mostly lower last week. Only the Hang Seng (up 1.4 percent), Kospi (up 0.4 percent), STI (up 1.7 percent) and Taiex (up 1.1 percent) managed to increase for the week and in September as well. For the week, the All Ordinaries ebbed 0.1 percent while the Topix and Nikkei retreated 0.5 percent and 2.6 percent respectively. The three also were lower for the month.

Oil prices influenced trading here along with the U.S. Presidential debate. There was a rally mid-week after OPEC surprised and announced an agreement to cut crude production — but the allocation of these cuts will not be made until its regularly scheduled meeting on November 30. After an initial rally, skepticism over OPEC's new plan to curb output surfaced again thanks to its lack of specifics sending crude and energy stocks lower.

Indian equities retreated on the week and month after skirmishes with Pakistan along their common border rattled investors. The Sensex lost 2.8 percent on the week and 2.1 percent in September. The index, after declining in January and February, had climbed for six consecutive months until September.

In Japan, a slew of negative economic data combined with a strong yen to send equities lower. Continued discussions regarding what the Bank of Japan did or didn't do at its last meeting also affected investors. Among the August data releases, consumer prices continued to indicate deflation, unemployment inched up while both retail sales and household spending retreated. There was an exception to the bad news — industrial production increased on the month.

Currencies

The U.S. dollar advanced against the yen and Swiss franc but declined against the pound sterling and the Canadian and Australian dollars. It was unchanged against the euro. Analysts continue to analyze economic data as they look for signals to future Federal Reserve policy. Data were mostly positive this past week. Fed Chair Janet Yellen said in testimony to a Congressional committee that accommodation will need to be gradually removed but also said that there was no fixed timetable.

The Swiss franc is a safe haven currency and it has been feeling the pressure from the questionable health of European banks and especially Deutsche Bank. And while fears abated on Friday, residual concerns are still in play. The Swiss National Bank has for some time been trying to lower the value of the currency and stir inflation higher. The SNB's policy rates are deeply negative. It has also intervened in currency markets to limit the franc's strength.

Selected currencies — weekly results

Indicator scoreboard

Eurozone

September EU Commission's economic sentiment climbed to 104.9, up from an unrevised 103.5 in August and the ESI's best reading since January. The improvement was led by the industrial sector where the confidence index rose 2.6 points to minus 1.7, its highest mark in more than four years. Moreover, morale was also more optimistic in the other main categories with construction gaining 0.8 points at minus 15.0, retail 1.6 points at 0.5 and services 0.1 points at 10.0. Consumer confidence was confirmed at minus 8.2, a 0.3 point increase from August. Regionally all of the four larger economies posted rises. The French ESI increased 0.9 points to 102.2, Germany was up 1.6 points at 107.1 (a year-to-date high), Italy gained 0.4 points to 103.5 and Spain advanced 0.5 points to 105.0. However, inflation developments, while moving in the right direction, were hardly reassuring. Selling price expectations in manufacturing (zero after minus 0.8) and in services (4.6 after 4.3) only reversed part of their respective August declines. Consumer inflation expectations (4.7 after 3.3) were slightly more robust and managed to hit a 3-month high.

September flash harmonized index of consumer prices was up 0.4 percent from a year ago after increasing 0.2 percent in August. It was its fourth consecutive reading above zero and its highest mark since July 2014. However, the good news in the headline data was attributable to the more erratic HICP components and was not mirrored in the key underlying measures. Both the HICP excluding energy, food, alcohol & tobacco and the index omitting just energy & unprocessed food held steady at their common 0.8 percent August rate. For the latter, this was its fifth consecutive print at this level. Rather, September's acceleration was essentially attributable to the energy sector where prices were 3.0 percent lower on the year after a 5.6 percent drop last month. The rate in services (1.2 percent after 1.1 percent) also had a small positive effect while a partial offset was provided by food, alcohol & tobacco (0.7 percent after 1.3 percent). Non-energy industrial goods inflation was unchanged at 0.3 percent.

August unemployment increased by 8,000 to 16.326 million and reversed some of July's smaller revised 31,000 decline leaving the unemployment rate unchanged at 10.1 percent for the fifth month. Among the larger EMU members, performances were mixed. Another 0.2 percentage point increase in the French rate to 10.5 percent contrasted with a 0.1 percentage point decline to 19.5 percent in Spain while both Germany (4.2 percent) and Italy (11.4 percent) showed no change.

Germany

September's Ifo economic sentiment climbed more than 3 points from a marginally upwardly revised August reading to 109.5, its sharpest increase since July 2010 and its highest mark since May 2014. The spike here was led by the expectations component which gained an impressive 4.4 points to 104.5, its best result in almost a year. Current conditions increased 1.8 points but failed to fully reverse August's 1.9 point decline. Among the major sectors, morale was up 6.9 points at 13.3 in manufacturing, 3.5 points at 9.1 in construction and 5.9 points at 11.6 in wholesale. Retail (7.9 after 2.5) similarly advanced strongly and the separate service sector survey (32.2 after 29.8) followed the same pattern.

United Kingdom

The final estimate of GDP was unexpectedly revised upward to 0.7 percent on the quarter from the previous estimate of 0.6 percent. However, the annual rate was nudged lower to 2.1 percent, 0.1 percentage point weaker than last time. The slightly firmer quarterly rate in part reflected stronger business investment which now shows a rise of 1.0 percent, double last month's print. Combined with a solid 0.9 percent increase in household consumption, up from 0.7 percent in the first quarter, this suggests that private sector demand was in good shape going into the current period. However, the same cannot be said of the external balance where the negative hit to quarterly growth was raised from 0.3 percentage points to 0.8 percentage points, thereby underlining the need for a more competitive exchange rate. Indeed, in terms of its contribution to GDP growth, this was the worst performance by net exports since the fourth quarter of 2013.

Asia/Pacific

Japan

August retail sales were down a greater than anticipated 2.1 percent from a year ago. It was the sixth consecutive drop. Most subcategories declined with the exception of autos which were up 1.8 percent and medicine & toiletries stores which were up 2.5 percent. However, machinery & equipment tumbled 9.4 percent after gaining 0.7 percent in July. General merchandise retreated 6.4 percent and was down for a sixth month. Fuel was down 7.7 percent from a year ago. Fabrics, apparel & accessories were down 2.1 percent after increasing 1.3 percent last time.

August consumer price index remains mired in deflation. Both the headline and core CPIs were down 0.5 percent from the same month a year ago making no progress towards the Bank of Japan's new inflation target of over 2 percent. This makes it the equal-lowest reading for core CPI since March 2013 and the sixth straight month of deflation, equaling the previous six-month bout that ran from November 2012 to April 2013. The 'core core' CPI which excludes all food and energy was up 0.2 percent on the year. This was the lowest reading since October 2013. Energy costs dropped 10.2 percent after sliding 11.3 percent in July. CPI TVs tumbled 15.3 percent after 11.9 percent. Electronic goods were down 2.4 percent on the year. They were unchanged in July. Food excluding perishables was up 1.1 percent after increasing 1.2 percent in July.

August industrial output grew at its fastest pace in more than two years. Output was up 1.5 percent on the month and 1.2 percent from a year ago. In July, output declined 0.4 percent. These data are particularly volatile. Among the industries that increased in August were electronic parts and devices (up 6.3 percent), information and communication electronics equipment (up 14.0 percent) and chemicals excluding drugs (up 3.6 percent). Transport equipment (down 1.7 percent), petroleum and coal products (down 1.6 percent) and fabricated metals (down 0.7 percent) all declined on the month. According to the September survey, output is expected to increase 2.2 percent and 1.2 percent in October.

Americas

Canada

July monthly GDP climbed 0.5 percent on the month and was up 1.3 percent from a year ago. Monthly progress was led by goods producing industries where output increased 1.0 percent. Within this, manufacturing underperformed with a 0.4 percent advance but this followed a 1.5 percent jump in June. It was mining, quarrying & oil & gas extraction (3.9 percent) that did most of the work as recovery from the Alberta fires in May continued. Agriculture, forestry, fishing & hunting (1.0 percent) also had a good month but construction (down 0.8 percent) declined for a second time in a row. Services expanded a more modest 0.3 percent with transportation & warehousing (1.1 percent) and accommodation & food (1.4 percent) the dominant subsectors. Finance & insurance (0.9 percent) also chipped in but trade (0.3 percent) was relatively subdued and there were declines in public administration (0.6 percent) and other services (0.2 percent).

Bottom line

Equities were mostly lower on the week and mixed in September. Investors reacted to OPEC's announcement of a modest cut in output but the details have to wait until November 30 to be filled in. Now that the Federal Reserve and Bank of Japan announcements have been made, investor attention is beginning to shift to the U.S. presidential election on November 7.

The coming week features policy announcements by the Reserve Banks of Australia and India on Tuesday. A slew of purchasing managers indexes globally will be released during the week and will get close scrutiny from investors. The quarterly Tankan Survey by the Bank of Japan will also be parsed closely to see if there are any signs of life in the Japanese economy. And the climax of the week will be the U.S. employment report.

Looking Ahead: October 3 through October 7, 2016

Anne D Picker is the author of International Economic Indicators and Central Banks.