Wednesday Morning Cheat Sheet: 3 Stories Moving Markets

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It’s Wednesday, October 23, and U.S. equities declined in early morning trading, indicating a red day on Wall Street. At about 8:30 a.m., Dow futures were off 0.38 percent, S&P 500 futures were off 0.46 percent, and Nasdaq futures were off 0.48 percent.

U.S. import and export prices increased in September. TheĀ Bureau of Labor Statistics reported that import prices increased for the third consecutive month, climbing 0.2 percent sequentially. Recent gains in import prices have been led by rising fuel costs, which climbed 0.6 percent in September. Non-fuel import costs climbed just 0.1 percent.

Export prices increased 0.3 percent, foiling expectations for a decrease of 0.1 percent. September’s increase breaks a six-month decline in export prices and was led by a 0.7 percent increase in the price of agricultural exports.

Across the pond, European equities were doing no better in midday trading. In the U.K., the FTSE 100 was off 0.31 percent; in Germany, the DAX was off 0.25 percent; in France, the CAC 40 was off 0.85 percent; and the Euronext 100 index was off 0.71 percent. The euro weakened slightly, to 0.7268 against the dollar.

The Spanish economy may have grown for the first time in two years, according to estimates from the Bank of Spain’s October Economic Bulletin. The nation’s central bank estimates that gross domestic product grew by 0.1 percent in the third quarter, a sign that the nation’s economy may finally be healing after nine consecutive quarters of contraction.

Spain’s headline unemployment rate spiked from a pre-crisis low of 7.9 percent before the 2008 financial crisis, hit a high of 26.9 percent in May, and has fallen slightly to about 26.3 percent since. The Bank of Spain commented that although unemployment has been declining recently, the rate of decline slowed in the third quarter.

Taking a step back, the Bank of Spain estimates that GDP grew moderately in the euro area in the third quarter, a prediction that, if true, would mean two consecutive quarters of economic expansion for the region following six consecutive quarters of contraction.

“The improvement in euro area activity was accompanied by an easing of tensions on European financial markets and of market fragmentation, although sizeable differences remain in the degree of financial restrictiveness borne by countries owing to the difficulties monetary policy has in transmitting its impulses uniformly,” the Bank of Spain said in its report. “Financial fragmentation is manifest in considerably tighter financing conditions for households and firms in the countries of the area where the economic situation is weaker.”

Spain Euro GDP

Source: Bank of Spain

Asian equities also closed the day on a sour note. In Japan, the Nikkei fell 1.95 percent to 14,426.05, and the yen strengthened to 97.4050 against the dollar. In Hong Kong, the Hang Seng fell 1.36 percent to 22,999.95, and in Shanghai, the SE Composite fell 1.25 percent to 2,183.11. In India, the Mumbai Sensex fell 0.47 percent to 20,767.88. In Australia, the ASX All Ordinaries fell 0.27 percent to 5,356.80.

Much of the bad mojo stemmed from news that China’s largest banks tripled the number of bad loans that they had to write off in the first half of the year, indicating that the nation’s financial institutions are preparing for a wave of defaults. Writing off the debt ahead of time may help steel the banks against the financial contagion of widespread defaults, but the move is still a pessimistic signal. Continued write-offs will hurt earnings, and if credit conditions tighten, then economic growth could slow.

Some analysts have taken a bearish position on China’s financial sector. Jim Chanos told Bloomberg that he is expecting the nation to have some sort of “credit event” within the next five years.

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