Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening, European equities were negotiating slightly lower. The macroeconomic data from China justified the fears of investors about the Chinese and global economy. Despite this data, the prices of the main raw materials remained stable, so it can attend a less selling pressure on the mining and petroleum sectors, much penalized in recent sessions. The situation of the Volkswagen came additionally to stress the panorama of the automotive sector. After the strong recovery of the past two years, which ended a row of six years of contraction, the outlook for the automotive industry became less optimistic with declining sales in emerging markets (especially China) and with increasing environmental pressures in Zone euro. The case of Volkswagen (which has already established a provision of € 6500 M. to deal with legal processes) may increase the pressure on other manufacturers (even if they have met the standards). The diesel is not as used in the US as in Europe and the sale of diesel vehicles was one of the bets of European manufacturers to enter the market of this country. European manufacturers are world leaders in the technology of this type of vehicles. With the infringement committed by Volkswagen this bet of the European brands may be impaired. In a survey prepared by CNBC on its website, 58% of respondents said they will continue to buy a car diesel compared to 31% who do not have this intention. However, several European countries have already announced that they will conduct rigorous testing of vehicles powered by this fuel, which represent additional costs for car manufacturers. Today at 14h00, the ECB President Mario Draghi will give some perspectives on the current economic climate to the committee of economic and financial affairs of the European Parliament. Although the outlook for markets is still threatening, given recent declines one can not exclude any short-term recovery.
US markets closed with substantial losses, reinforcing the downward trend started at the end of last week. Investors’ fears regarding the global economy have been exacerbated by a few discouraging studies. The Asian Development Bank lowered its estimates for China’s growth this year, from 7.20% to 6.80% and India (an economy that has shown some resilience to the current environment) from 7.80% to 7.40%. However, estimates of the economists of the major investment banks are more aggressive, showing sometimes some skepticism about the official figures published by the Chinese Government. Yesterday, Barclays announced its projections for the Chinese GDP growth in the 3rd and 4th quarter of this year which should be up, respectively, 5.30% and 5.50%. If these variations are confirmed, then the growth of the Chinese economy in 2015 is expected to be quite far from the 7% desired by the government in Beijing. These indicators caused a very sharp pressure on key raw materials, especially for industrial use. Compounding the pessimism of investors was also a study by Credit Suisse on commodities with the plain title of “Race to the Bottom”. Credit Suisse believes that in China there is an industrial overcapacity that has to be corrected and that will result in lower demand for raw materials such as copper, zinc, aluminum among others. In addition, economists at Swiss bank predict that China will adopt a more rational and economic infrastructure policy, which should lead to a decrease in construction of public works. Despite the mining and petroleum sectors were the hardest hit by these studies, the weakness was widespread. The outlook for equity markets remains somewhat bleak.
Asian markets closed with sharp losses, with investors in stress before another alarming data about China. In September, the preliminary reading of the PMI (manufacturing sector), prepared by economists at HSBC, pointed to a bending to 47.0, the weakest level in six and a half years. The weakness of this index is primarily explained by the sharp fall of the components of new orders and exports, signaling a weakness either in domestic demand and external demand. These data countered the words of confidence expressed by the Chinese President during his visit to the United States.