Overnight Points of Interest

Posted by Graham Parlane on 28 October 2014

Ahead this week (high impact)

Overnight

# European banking shares led the Stoxx600 lower as a classic “ buy the rumour, sell the fact” episode set in following the ECB’s stress test revue. Most euro zone banking stocks ended the session in negative territory, trimming lofty gains made in the run-up to the results of the ECB review. Further compounding the losses was a German business sentiment index that dropped to its lowest in almost 2 years. The ‘stoxx’ fell 0.63% over the session. U.S. bourses ended mixed, the S&P500 down just 0.17% whilst the Dow eked out a 0.06% gain. The session was a well needed pause after the biggest weekly gains for major indexes in more than a year last week. Market activity was relatively light, with many investors holding off on placing big trades ahead of high-profile economic events later in the week, including the latest policy announcement from the Federal Reserve due Wednesday.

# German business confidence has fallen to its lowest point since August 2012, according to the latest IFO Business Climate Index. The October survey showed confidence slipping to 103.2 this month, missing analyst forecasts for 104.3 and below the 104.7 figure in September. The decline compounds fears over the health of Europe's largest economy after German government cut the country's economic growth forecast to 1.2% from 1.8% and 2015 forecast to 1.3% from 2% earlier this month. German industry is already showing signs of weakness after seeing a 4% drop in production between July and August.

# U.S. pending homes sales rose 0.3% in September after falling 1.0% in August. These contracts usually translate into sales after a month or two. The gain last month was below Wall Street's consensus forecast of a 0.5% rise and shows a generally lacklustre housing market after housing had been one of the big stories in the last 18 months. Contracts were up 1.0% compared to September last year.

# Crude oil markets reregistered sharp price moves with WTI falling below US$80 for the first time in 28 months, before rebounding to settle little changed. The move appears driven by a Goldman Sachs report where the U.S. investment giant slashed its forecast for Brent to $85 a barrel from $100 for the first quarter of 2015 and reduced its projection for U.S. (WTI) crude to $75 from $90, making it the most bearish bank on Wall Street. From our experience on a trading bank interbank FX desk we’d suggest that Goldman’s are usually well positioned ahead of their public comments and as such would not get carried away with selling crude here. Indeed we’d be doing just the opposite in the near term.

# US and German 10-year yields declined as northern hemisphere equities were generally soft and the ECB also gave some indication of its pace of asset purchases in its latest attempts to stimulate the economy. German 10-year yields slid from 0.91% to 0.87%. US equivalents subsided from 2.29% to 2.26%.