Notable events over the last week

Market Update

Thursday saw the release of September’s FOMC meeting minutes which supported the committee’s decision to leave rates on hold for yet another month. All but one of the members voted against an increase and the minutes reiterated that ‘lift-off’ was dependant on future developments in the economy. Fed Vice-Chair Fischer highlighted the ‘considerable uncertainties’ around the US economy over the weekend. Markets are now pricing in the first rate rise as late as March 2016.

The pace of the US service sector growth slowed in September albeit after two of the strongest months in a decade. The Institute for Supply Management’s non-manufacturing index declined to 56.9 in September from 59 the prior month and 60.3 in July. The reading remains indicative of expansion (50+) however denotes a slower pace.

The US trade deficit surged in August on the back of disappointing export numbers. Exports of goods and services reduced by 2% to their lowest level since 2012 while imports rose by 1.2%, pushing the trade gap to $48.3bn from $41.9bn in July. The concerning 15.6% increase has been attributed to the strong US dollar, weak demand in foreign markets, and expectations of higher interest rates in the US. The results were also exacerbated by the unusually narrow trade deficit registered in July.

The Eurozone Composite PMI underwhelmed in September dropping to 53.6 from 54.3 in August marking the region’s weakest growth in four months. Although the reading remains above 50, many analysts had been expecting a slower decline to 53.9. German exports also disappointed to the downside this week showing a collapse of 5.2% in August, significantly below the 0.9% contraction expected. The decline marked the largest drop in exports since January 2009 and contributed to the shrinking of the trade surplus from €22.8bn to €19.6bn.

In the UK, a rise in car exports helped narrow the trade deficit in August however the trade gap was worse than expected. Car exports rose £500mn over the period to reduce the monthly shortfall to £3.3bn for August from £4.4bn in July yet the UK remains on course to post a Q3 deficit of £11.1bn, significantly above the £3.5bn recorded in Q2 and expectations of £9.9bn for the quarter. Construction output also fell by 4.3% for the month, the fastest pace of contraction since 2012.

Lastly, Thursday marked the start of the 3Q15 earnings season which is set to see sales retract by 3% YoY. Earnings per share (EPS) are expected to fall further by 3.7% for the period; however EPS is predicted to increase by 2.2% once the struggling energy sector has been removed from analysis.