European equity close: Moderate selling weighs on stocks

Closing changes for the main European bourses:

  • UK FTSE 100 -0.3%
  • German DAX 0.4%
  • Italy MIB +0.2%
  • French CAC -0.4%
  • Spain IBEX +0.4%
The periphery did better today. In Spain stocks opened much lower but recouped the losses quickly and then finished at he highs of the day. The IBEX daily chart continues to consolidate but that’s a nice rejection of the lower trendline.
Closing changes for the main European bourses:

Fed’s Clarida: Gradual taper concluding mid-2022 may soon be warranted

Comments from the Fed vice chair

Comments from the Fed vice chair
  • Risks to inflation are to the upside
  • Fed would react to persistent upside move in inflation expectations but that isn’t happening now
  • Decision on pace of asset purchases won’t be intended to carry signal about timing of rate hikes
  • Labor market progress has been notable
  • Inflation running ‘well above’ moderate overshoot of 2% goal
  • This year’s unwelcome inflation surge will be largely transitory
  • Bar for taper on inflation ‘more than’ met while on employment it’s ‘all but met’
This is similar to his September speech.
  • The big unknown is how long it will take bottlenecks to be resolved
  • There is a flavor of stagflation right now
  • Stagflation is not my baseline case and I don’t think it will be the trend going forward
  • Delta has complicated the signal on the labor market

IMF fractionally downgrades 2021 GDP, leaves 2022 unchanged

The latest World Economic Outlook

  • 2021 GDP seen at 5.9% from 6.0% in July
  • 2022 GDP remains at 4.9%
  • Cuts US forecast by 1 percentage point this year
  • China 2021 GDP cut to 8.0% from 8.1%
  • Risks tilted to the downside including emergence of new variants and more persistent supply-demand mismatches
The IMF highlighted there could be a downgrade recently.

Drop in the ZEW survey points to more trouble for the euro

A sign of how hard the energy crisis is hitting

The German ZEW business sentiment survey is one of the better high-frequency data points for Europe and today it sank to 22.3 from 26.5.
Zew survey
At this point we should be seeing sentiment ratchet higher but it’s already back to mid-cycle levels — and mid-cycle wasn’t very strong in Europe.
The number emphasize how hard the supply chain woes and energy crisis are hitting German manufacturing. At the moment, those are still temporary problems but the timeline to straighten them out is extending. At the same time, costs are going up, eroding margins.
One of the relief valves is the currency and the fall in the euro will act as a bit of a buffer but with the euro already at the lows of the week and showing little signs of life despite the recent rout, there’s likely more to give.
EURUSD 1 hour chart

US dollar jumps across the board after USD/JPY move

USD/JPY leading the way again

USD/JPY leading the way again
Every fresh seven-year high in USD/JPY prompts another wave of buying. This leg was strong enough to boost the dollar right across the board.
It comes with 10-year Treasury yields ticking higher to 1.608% but not yet to the Friday high of 1.62%. If that gives way, we could see another leg. Note though that there’s a 10-year auction today at 1 pm ET.
I would expect this move to transition into more of a ‘sell-the-yen’ trade across the board but equities might have ideas of their own.

Keep an eye on the VIX around the 20 region


The VIX has been hovering around the 20-21 region so far today.
The VIX has been a great shibboleth for testing whether stocks will rise or fall and a quick barometer on the risk tone. If we move, and stay above 21, then expect equities to keep falling. If we move below, and stay below 20, expect stocks to rise.
VIX is the bottom right chart amongst a selection of global indices.

Germany October ZEW survey current conditions 21.6 vs 31.9 prior

Latest data released by ZEW – October 12

  • Outlook  22.3 vs 24 expected
  • Prior 26.5

Going into the meeting the question is whether confidence would continue to wane in Germany. Supply chain issues, low gas storage, and surging energy costs are all difficult headwinds not just for Germany, but Europe as a whole.

A worse reading as those risks continue to weigh more stomgly on the eurozone. Supply chain bottlenecks blamed by ZEW and EURGBP seeing some weakness now.

Fed speakers coming up on Tuesday 12 October 2021 – Clarida, Bostic & Barkin

Federal Reserve Bank of Atlanta President Raphael Bostic is scheduled to speak on “Inflation”

  •  and participates in a moderated questionand-answer session before a virtual event hosted by the Peterson Institute for International Economics.
  • 1230 ET US time, which is 1630 gmt
Federal Reserve Vice Chair Richard Clarida is expected to speak on the U.S. economic outlook and monetary policy before the virtual Institute of International Finance Annual Meeting.
I have seen two times listed for this and am not sure which one to go with.
  • 1115 US ET, which is 1515 GMT
  • or 1800 US ET, which is 2200 GMT
Federal Reserve Bank of Richmond President Thomas Barkin appears on Public Radio’s “Full Disclosure” podcast.
As for eco data due for them US tomorrow, Greg had this:
  • A look ahead to North American tomorrow’s data and events

JOLTS jobs data graph

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