Market woes continue

1 October 2015

August’s volatility tipped into September on world stock markets, as confidence in the Chinese economy’s ability to bolster global economic growth waned, and the US Federal Reserve Board opted to keep interest rates on hold – despite many investors believing that the Fed’s September meeting would see the first US rate rise since 2004.

US data improves, but China spooks Fed

The month saw better US data on GDP – the second-quarter annualised growth rate was revised upward for the second time, to 3.9 per cent – and on job vacancies, which hit a record, but that was not enough to negate the worries emanating from China. Despite the fact that the International Monetary Fund (IMF) did not downgrade its expectations for Chinese growth when it slashed its 2015 global growth forecast to 3.1 per cent, the lowest in six years, the alarming Chinese stock market slump that continued in September worried investors, despite their full knowledge that the Chinese stock market and the Chinese economy are two very different things.

This concern was not helped by Fed chair Janet Yellen hinting at the unclear situation in China as one of the reasons why it did not lift US rates. The IMF expects Chinese growth to come in below Beijing’s 7 per cent target this year, at about 6.8 per cent and 6.3 per cent next year.

Market woes continue

Markets generally had a tough time in September, led by the slumping Asian markets. In China the Shanghai Composite index shed 4.8 per cent for month, making a loss of 28.6 for the quarter, and 5.6 per cent year-to-date. Shanghai is not going as badly year-to-date as Hong Kong, where the main Chinese stocks are listed: the Hang Seng Index is showing a loss of 8.9 per cent for 2015, after a 3.2 per cent drop in September and a quarter that saw it give up 19.8 per cent. In Japan, the Nikkei index lost 8 per cent in September and 14.1 per cent for the quarter, but is almost square year-to-date, down just 0.4 per cent.

US markets were also lower, with the Dow Jones Industrial Average declining by 1.4 per cent in September, on its way to losing 7 per cent for the quarter – the same deficit it shows for 2015. The broader S&P 500 index lost 2.5 per cent for the month, to be down 6.4 per cent for the September quarter, and 5.3 weaker year-to-date. The technology-heavy Nasdaq Composite dropped 3.2 per cent for the month and 7.1 per cent for the quarter, but is out-performing the other major US indices, trimming its loss for 2015 so far to 1.6 per cent.

European markets put in a tough month, with the FTSE-100 down 2.9 per cent (down 6.1 for the quarter, down 4.9 per cent year-to-date), the German DAX off 5.8 per cent (down 11.7 per cent for the quarter, down 1.5 per cent year-to-date) and the CAC 40 in Paris losing 4.1 per cent for the month, to be 6.8% lower for the quarter: the Bourse measure, however, boasts a 7.2 rise so far in 2015.

In Australia, the benchmark S&P/ASX 200 shed 3 per cent in a difficult month, to be down 6.6 per cent for the quarter, which tipped it to a 3.7 per cent running loss for 2015 to date.

Commodities still nervy

Oil prices were one of the main casualties from the August-September stock market correction, eroded by concerns that the Chinese economy might be slowing by much more than its official figures indicate. West Texas Intermediate plunged 8.4 per cent in September, to be down 24.2 per cent for the quarter and by 15.7 per cent year-to-date. The North Sea Brent price fared a little better, losing 3.7 per cent for the month, but it lost 22.1 per cent for the quarter, and is staring at a 13.8 per cent fall for 2015 to date.

Iron ore (62 per cent Fe) ended September at USS53.14 a tonne, the lowest level since July 27. For the quarter it averaged $US54.86, but market consensus expects a lower average price for the current quarter: record exports went through Australia’s Port Hedland in September, and cargoes from Brazil rose to their highest levels this year. Spot prices for metallurgical (steel-making) coal have essentially stabilised since May at levels around US$85 a tonne, having fallen significantly since the start of the year. Like iron ore, a weaker average price is expected this quarter. Spot prices for thermal (power) coal have been relatively stable since April.

The commodity price declines continue to weigh on the Australian market, while the market’s other pillar, the banks, have also been under pressure, as increased prudential requirements have required them to undertake quite significant capital raisings, with the possibility of more to come.

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