While you were sleeping: Global growth concerns

Tuesday 10th November 2015

Equities on both sides of the Atlantic moved lower, as did commodities, amid expectations of slowing global economic growth, even as the US Federal Reserve appears to be positioning for higher interest rates next month.

The Organisation for Economic Co-operation and Development downgraded its global growth forecasts. In its twice yearly Economic Outlook report, the OECD said it expects the world economy will expand by 2.9 per cent this year and by 3.3 per cent in 2016, down from earlier forecasts for 3 per cent and 3.6 per cent respectively.

Emerging market challenges, weak trade and concerns about potential output suggest higher downside risks and vulnerabilities compared with its June Outlook, according to the OECD.

“The slowdown in global trade and the continuing weakness in investment are deeply concerning,” OECD Secretary-General Angel Gurria said in a statement.

The report came after China reported weaker than expected trade data on the weekend, exacerbating concern about the world’s second largest economy. Economic growth in China is projected to slow to 6.8 percent in 2015 and “to continue to decline gradually thereafter”, reaching 6.2 percent by 2017, according to the OECD.

Wall Street moved lower. In New York trading at about 10.36am, the Dow Jones industrial average slid 0.90 percent. At about 10.22am trading, the Standard & Poor’s 500 Index retreated 0.92 percent while the Nasdaq Composite Index gave up 0.89 percent.

"There is some caution on the consumer side and export-led sectors that comes from questions about the Chinese economy and emerging markets as a whole,” Pierre Mouton, a fund manager at Notz, Stucki & Cie in Geneva, told Bloomberg. “The economic numbers from China are not very good for the time being.”

In the Dow, slides in shares of IBM and those of Chevron, last trading 2.1 percent and 1.6 percent weaker respectively, led the decline.

US Treasuries fell, pushing yields on the 10 year note four basis points higher to 2.37 percent, the highest level in three months.

Following Friday’s better than expected US jobs data, investors have increased bets the Fed will hike rates at its December meeting. To be sure, a strengthening US greenback could be a concern.

“The strong US labour market report is a signal they may hike rates, but they’re not going to completely ignore the currency,” Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt, told Bloomberg.

“If you push it too far, they’re not going to hike rates. There will be gradual dollar strength over the next year but you have to be patient. That’s why we see higher euro-dollar.”

Meanwhile, copper, gold and nickel weakened as the stronger US dollar hurt demand for commodities denominated in it.

The eurozone might see additional stimulus next month to help stoke the region’s economy.

Four policymakers at the European Central Bank said a consensus was forming around lowering its deposit rate in December, Reuters reported, without naming the officials.

The OECD said it expects the eurozone economy to grow by 1.8 percent in 2016 and 1.9 percent in 2017.

Europe’s Stoxx 600 Index finished the session with a 1.1 percent slide from the previous close. Just ahead of the close, the UK’s FTSE 100 Index declined 0.7 percent, while both France’s CAC 40 Index and Germany’s DAX Index each shed 1.3 percent.

BusinessDesk.co.nz

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