World equities idled on the first trading of the week as investors continued to have mixed feelings. Half of Europe's markets ended wearing green, while the other half headed lower. In the US, only the Russell 2000 – a small-cap stock index – was able to keep its head above water as it rose 0.41%. The S&P 500 and the Nasdaq were both down, falling 0.59% and 0.88%, respectively. This morning, Asian equities were trading trendless with Japan equities edging higher, while Chinese ones suffered another blow. The Shenzhen Composite fell most as it erased another 1.72%. The CSI 300 was down 0.60%. In Europe, futures are moving back and forth around the neutral threshold.
In the FX market yesterday, disappointing US data weighed on the buck, but only temporarily. Retail sales data for the month of September came in well below expectations. The headline number rose only 0.1%m/m, while market participants were looking for an 0.6% increase. It seems that this unexpected decline is mostly attributable to a sharp contraction in restaurant sales, however, while the control group, which excludes gasoline, auto, building materials and food services, rose 0.5%. Therefore, it is complicated to draw hard conclusion from this report. But note must be taken that retail consumers did decide to cut their spending budgets. This could be an omen for the coming months, especially after such a strong second quarter. The rest of the week will be relatively light in term of hard data with only September's industrial production due later today; housing starts and building permits tomorrow and existing home sales on Friday. On the central bank side, the market will closely look at the September FOMC (Federal Open Market Committee) minutes that will be published tomorrow.
In our opinion, the risk is skewed to the upside for the buck as the uncertainty on this side of the Atlantic is for investors to maintain a long USD bias. Nevertheless, in the longer term, we think that the single currency will resume its rally against the backdrop of a rising US deficit and the increasing costs of servicing debt.
By Arnaud Masset