The sharp four-day rebound in US stocks

Market movers today

• Main event will be euro Flash PMI for October, which provides country details for Germany and France. PMI has been on a declining trend since January and so far has shown no signs of stabilisation. We look for a slightly lower PMI for both manufacturing and service. The slowdown has been centred in the manufacturing sector but some spill-over effect on the service sector is expected. European companies have hit the brakes this year, as inventories were built early in the year and the Ukraine crisis caused new uncertainty. This shock is still working its way through the economy. On a positive note, consumers have not yet scaled back spending. We expect the manufacturing sector to recover in early 2015, as inventories have been cut back and consumption is underpinned by the decline in oil prices.

• The US releases PMI from Markit, which is expected to have levelled off slightly from 57.5 to 57. It is still a high level, though, pointing to decent growth in the US economy. Initial jobless claims are also due for release. They fell to a new cycle low at 264k last week and are expected to rebound slightly to around 280k. Overall they point to a robust labour market.

• Several important events in Scandinavia today, most notably Norges Bank’s rate decision and Swedish unemployment data.

Selected market news

The sharp four-day rebound in US stocks came to a halt in yesterday’s session. After a strong start – where US stocks generally followed the European indices’ move higher - the S&P500 ended the day 0.73% down in particular driven by energy shares, as the oil price tumbled after European close. This also weighed on Asian stocks in early trade before risk sentiment was significantly improved by the PMI release out of Japan and marginally improved by Chinese PMI figures. At this morning’s close, Nikkei had regained the early losses, while the major Chinese indices (i.e. Hang Seng and Shanghai Composite) ended the day lower.

In China the flash estimate for the HSBC/Markit manufacturing PMI in October improved to 50.4 (consensus: 50:2) from a final reading of 50.2 in September. The details were a bit weak with new orders declining marginally to 51.4 from 51.5 and export orders declining to 52.8 from 54.5. Inventories of finished goods also started to increase in October. Hence, the weak details still suggest some moderate downward pressure on the manufacturing PMI in the coming months. However, the Chinese economy has been surprisingly resilient in light of the marked slowdown in credit growth and investment demand in recent months. So far it suggests that China is able to rebalance the economy without a severe slowdown in growth.

In Japan the flash estimate for the JMMA/Markit manufacturing PMI improved to 52.8 (consensus: 51.7) in October from 51.7 in September. The details were strong with new orders surging to 55.1 from 52.3 and export orders improving to 52.6 from 52.2. In line with other recent data, including yesterday’s foreign trade data, it suggests that growth in Japan is picking up pace after disappointing in Q2 and Q3 in the wake of April’s VAThike. Hence, there will be less pressure on BoJ for more easing, albeit BoJ will still be forced to cut its growth forecast in connection with its meeting next week.