Global equities ended in red territory, as the commodity bear market continued and the Chinese manufacturing Purchasing Managers Index (PMI) pointed to increasing concerns about a significantly weaker Chinese economy. This is likely to prompt the interventionist Chinese government to ease policy further in an attempt to improve the prospects for growth. On a positive note there are signs that the Chinese housing market is responding to the policy stimulus – a good leading indicator for the overall economy.
How times have changed when economic perceptions of China can have such a marked impact on capital markets.
European equities also suffered from weaker than expected eurozone PMIs, possibly reflecting continuing fears over Greece. The European Central Bank rejected Greek proposals for re-opening the Greek stock exchange with no restrictions for Greek or foreign traders.
The Athens stock exchange has been closed since June 26, on the back of the imposition of capital controls. Meanwhile, stories of considerable differences of opinion on the way forward in the Greek negotiations attracted attention over the weekend.
Most of us will have noticed the positive impact of lower oil prices in forecourts. Following the sustained drop in oil prices, some are suggesting that we have hit close to the bottom of the oil price cycle.
Given the present global growth scenarios however and the possibility of monetary policy tightening in the US and elsewhere, increases should be relatively muted. There are few areas of the oil market left where production could surprise positively and push prices further down.
Saudi Arabia has maintained its production at a historically high level and even Iraq has succeeded in elevating its daily supply significantly. Production in North America has showed surprising resilience in response to the steep drop in oil prices earlier this year.
As ever with oil, the geopolitical risk will continue to have the potential to make a nonsense of fundamental projections. In the meantime, let’s continue to enjoy the benefit of an oil price that has gone from well over $100 a barrel this time last year to around $50 a barrel today.