End of September Review

Market Update

The overall market scenario for the last week looks good in the developed economies, with the unemployment levels declining and the headline inflation touching almost zero. However, it is important to note here that global growth is weighed upon by the performance of developing economies.


In terms of the stock market performance for the last week, the overall performance was good, especially for the developed economies. For the last week, the S&P 500 went up by 1.04%, Dow almost went up by 1%, FTSE 100 went up by 0.34%, NASDAQ was up by 0.45%, Sensex 30 went up by 1.38% and Hang Seng was up by 1.51%. On the other hand Nikkei 225 decreased by 0.87%, Shanghai decreased by 1.28%, Germany’s XDAX decreased by 1.4% and France’s CAC was down by almost 0.5%. The week also witnessed Brent Crude going up by 0.64% to $47.38 and Gold decreasing by 0.5% to $1,138.65.


In September, the Chinese government’s official manufacturing purchasing managers’ index rose from 49.7 to 49.8. However, still the factory activity continued to decline. As a result the Chinese industrial companies profit declined by 8.8% on the year in August. This decline is by far the most since 2011, when the records began.


The economic slowdown and growth decline in China has also decreased the demand of raw materials, especially at a time when the investment in new production has brought an excess of supply into world markets. As a result, the oil, copper and coal prices are close to their lowest levels since the financial crisis. This has had a major impact on mining and oil companies in the world. For instance, the decline in steel demand from Russia and China, along with a 40% decline in prices over the past year has led the Thai based SSI to announce cutting production at its UK steel plant. Meanwhile, the US witnessed the largest decline since April in the number of rigs drilling for oil, which was reduced by 26 rigs. In other news, after disappointing results from a key well in Alaska coast and spending $7 billion, the Royal Dutch Shell has stopped Artic oil and gas exploration. The current prices led Glencore’s share to decline by 30% just in a day, before they recovered by the end of the week.


The US economy is expanding at a steady pace, though company earnings are under pressure. The manufacturing level barely grew for the month of September because it witnessed the slowest pace of orders since November 2012. This was mainly due to a stronger dollar and faltering overseas markets. The unemployment was still at 5.1% as only 142,000 jobs were added in September. The prices rose during the week, resulting in the yield on 10 year US treasury bonds to decline by 18 basis points to 1.99%. The September Federal Reserve meeting was mildly dovish but unclear communication increased uncertainty and led risk assets to sell off. However, the Fed has signaled that they remain on track to raise interest rates this year.


In the Eurozone, the economy is slowly improving, being supported by the ECB policy. However, the unemployment rate for the month of August remained unchanged at 11%.  The Eurozone also witnessed prices falling at an annual rate of 0.1%, resulting in deflation in the Eurozone for the first time in six months. The deflation resulted mainly because of an 8.9% decline in energy prices.


In India, the Reserve Bank of India adopted a ‘front-loaded policy action’ by cutting its key interest rates by 50 basis points to 6.75%. Raghuram Rajan (RBI Governor) wants to work with the government to remove impediments to banks passing on this year’s interest rate cuts to consumers and businesses.