German economy may be turning a corner as consumer confidence rises

Good morning,

• Ebola case in New York weighs on sentiment ahead of the US open;

• Investors cautious ahead of EU stress test results;

• German economy may be turning a corner as consumer confidence rises;

• Housing data and earnings in focus as the week comes to an end.

The week looks set to end on a slightly more negative note, after investors were once again spooked by a confirmed case of Ebola in New York, while the results of the EU bank stress tests on Sunday will also be feeding into the more cautious tone.

Despite what many people are saying, I don’t believe for a second that these Ebola stories are weighing on the markets because of fear of it spreading. There has only been one fatality in the US which, despite being very unfortunate, is not evidence that we have a pandemic on our hands or even that we have anything to worry about.

What this suggests is that there is still a lot of anxiety in the markets and there is still great potential for some big sell-offs, similar to those seen last week. The markets may have performed well since hitting 6 month lows, but I’m not convinced that this means the anxiety that led to the sell-off has gone.

What may also be feeding into the risk aversion today is the fact that the EU bank stress test results will be released on Sunday. These have the potential to cause significant turmoil in the markets, whether that be because more banks than expected fail, a large bank unexpectedly fails it or we see evidence that banks in the core countries like Germany and France are struggling. With this in mind, I expect to see further risk aversion as we approach the end of the week.

It’s been a quiet morning on the economic data side and this is going to continue throughout the US session. Consumer confidence in Germany surprisingly turned higher in October according to a survey compiled by Gfk. Given that this follows encouraging PMI readings earlier this week, it may suggest that the country is turning a corner and the end of the year won’t be as bad as initially thought. A preliminary reading of UK output confirmed that the economy grew by 0.7% in the third quarter, bringing annual growth to 3%.

With only new home sales data due out today, focus is likely to remain on earnings season with 16 S&P 500 companies reporting on the third quarter. While there may not be as many companies reporting today, the list does include some big names such as Procter & Gamble, State Street and Ford so it’s certainly worth monitoring.

The S&P is expected to open 4 points lower, the Dow 27 points lower and the Nasdaq 14 points lower.