October sees a recovery, will the fireworks return in November

After a reasonable first month of the final quarter for equity markets, the last week of October was a little more mixed in performance.  The summer months were dominated by a series of negative headlines; these concerns hit equity sentiment to such an extent that many developed markets fell by up to 20% from their highs. October saw some of these fears retreat and equity markets recovered some of the losses. Greece came of the newspaper headlines. The IMF also gave some reassurance in regards to the Chinese economy, despite downgrading its global growth expectations for this year and the next.

 

The earnings season is coming into the final stretch. So far about two thirds of the S&P 500 companies have reported q3 earnings. As has been the case on more than one occasion in the recent years, earnings beats have out stripped revenue beats. So far this quarter over 75% of companies have beaten earnings expectations but less than 50% have beaten at the revenue line (fact set).  According to Merrill Lynch the earnings revision ratio has fallen again.

 

At the latest Federal Open Market meeting this week, the committee reiterated its hope to raise rates at the December meeting. Treasury yields in the US jumped after the statement, as did the US dollar. Equity markets, particularly in the US took the news in their stride.

 

Looking to the week ahead, for the UK Thursday will be the focus as the Bank of England announces the latest monthly interest rate decision. What may get more attention is the release of the minutes from the last Monetary Policy Committee meeting. Some of the Sunday papers are speculating that the number of those who voted for a change in rates will rise from just the one. On Friday September’s industrial production and manufacturing data is released.

 

It’s a quieter week for US macro economic data, later on Monday we get October’s Institute’s for Supply Managements purchasing managers index (PMI). The index has steadily fallen from this time last year; the forecast is for the index reading to be at 50 for the month of October.  This is right on the number that is supposed to separate an expanding from a contracting economy.

 

Overnight on Saturday the Chinese National Bureau of Statistics released its latest PMI data. The manufacturing index came in slightly below expectations at 49.8 against expectations of 50, the service sector reading likewise came in slightly below expectations at 53.1.

 

Europe also sees the release of the latest Markit manufacturing PMI. On Tuesday and Wednesday Mario Draghi speaks in Frankfurt, where he may give more hints as to the ECB’s current views on further stimulus measures.

 

Looking ahead to the final two months of the year, according to CNBC, a strong month in October has in the past bided well for a run into the year. Hopefully this will be the case once again but one cant rule out more volatility. 

Posted on November 1, 2015 .