Markets fall on Hong-Kong tension

US stock markets fell on Monday as civil protests in Hong-Kong heightened investors’ concern over rising geopolitical tensions. TheDow Jones Industrial average (DJI) fell 41.93 points, or 0.3 percent, to 17,071.22; the S&P 500 (SPX) lost 5.05 points, or 0.25 percent, to 1,977.8, pairing initial losses of nearly 1 percent. The negative news about new tension source in Asia added to worries over continuing turmoil in Syria, Ukraine and slowdown of Chinese economic growth. Positive economic data for US didn’t overcome the cautious stance the investors have adopted with increased risk and uncertainty. US Commerce Department reported a 0.5 percent increase in consumer spending in August after no change in July. This positive sign for the economy was dampened by disappointing report from the National Association of Realtors showing a drop in the number of contracts in August Americans signed to purchase previously owned homes. The pending home sales index dropped 1 percent after a 3.2 percent increase in July. The rebound in consumer spending indicates the US economy is on a recovery track, and investors are trying to assess whether the economy performance will prompt the Federal Reserve to hike interest rates sooner than the scheduled increases possibly as soon as early next year. Dallas Fed President Richard Fisher’s comment in a Fox News interview that the Fed mustn’t “fall behind the curve” as it weighs when to start raising interest rates, citing strengthening U.S. growth and building wage-price pressures, indicated the possibility of moving forward the timing of central bank rate increase is real if data on economy continue to exceed expectations. 

The data on Japan indicated the factory output, consumer spending and real wages fell in August. This fall is attributed to the sales tax hike from 5 to 8 percent in April, which was instituted with the purpose of raising income for cutting Tokyo’s debt. The weak economic data indicate that the Bank of Japan may take additional measure to ease monetary policy further in coming months. The negative economic data reinforced the bearish mood, the benchmark Nikkei 225 index fell 1.1 percent after closing higher the previous day.

The preliminary data from Germany indicated the consumer price inflation remained at 0.8 percent for third month in a row. The data released earlier had indicated a slowing in the fall of consumer price inflation from -0.5 percent for September to -0.3 percent in Spain. The better than expected performance of prices in the Europe’s largest economy together with easing of price falls in Spain suggest that the Eurozone inflation rate may not fall from current annual rate of 0.4 percent contrary to experts’ forecast. The data are due later in the day.

Today a number of statistics will be released in North America and Europe. At 16:00 CET US Consumer Confidence Index for September will be published, a slight improvement to 92.5 from 92.4 for the previous month is expected. At 9:55 CET German Unemployment figures – the seasonally adjusted Unemployment Rate and the unemployment change will become available, with no change expected. At 11:00 CET Eurostat will publish Eurozone Core Consumer Price Index yoy for September and Unemployment Rate for August. The Eurozone CPI is expected to decline to 0.3% from 0.4% while no change in unemployment is anticipated.

Brent crude futures traded above $97 a barrel. Brent for November settlement was at $97.29 a barrel on the London-based ICE Futures Europe exchange, up 9 cents, at 2:55 p.m. Singapore time. The contract climbed 20 cents to $97.20 yesterday. The volume of all futures traded was 53 percent below the 100-day average. Prices have decreased 12 percent this year. The increasing US crude production has provided a cushion against falling output in Libya as country’s output fell by 25000 barrels a day to 900,000 bpd due to ongoing strike. The market is watching the Libya production recovery from 200,000 bpd earlier in the year since Brent’s premium overWTI will likely narrow with increased Libyan output. Brent’s premium over WTI narrowed to the smallest in 12 months on Monday, touching $2.57 a barrel.