Equities continue to move higher

The distortions between tepid economic growth and inflated asset prices are starting to concern market participants, as equities continue to move higher and economic data fail to match the exuberance.

The Fed’s meeting this week has prompted market participants to put forward a different framework for the central bank to consider, besides economic indicators, in its tapering decision. Such as, for example, ballooning risky assets.

The S&P500 and the technology sector continue to hit highs amidst uncertainty regarding the US economic climate. The numbers we have seen so far - such as payroll and consumer confidence figures - continue to decline, suggesting that fundamental growth in the economy lacks momentum and is deteriorating in parts.

Corporate profits in the S&P 500 reflect the underlying issue that companies are cutting costs and not creating jobs to meet shareholders’ expectations on the top line. So far, 244 companies have reported earnings where sales have largely been muted, yet where earnings have surprised on the upside.

Asian leaders are also grappling with policies to combat slower growth. On this week’s calendar, India’s RBI Chief is likely to raise repurchase rates tomorrow to combat rising inflation, which hit 9.8% last month. Their economic growth has been cut down to 4.7% from 6.1% from the World Bank, although India’s leaders expect growth of 5%.

On 1 November, South Korea - which has been the main beneficiary of foreign funds inflows this month in their equity markets - is likely see exports for October muted on slower US demand.

China’s much anticipated plenum in November is likely to see changes in the financial and fiscal reforms to social reforms, as they prepare for a different stage of economic growth. Steps taken to bolster smaller enterprises have seen positive results in the PMI. The HSBC flash PMI this week should show continued expansion.

Finally, Indonesia’s effort in curbing inflation is expected to show results this month after its first dip in September. We’re seeing the return of foreign investors’ risk appetite for Indonesian bonds, with inflows of $2billion while the equities markets are still shunned, with a negative outflow of $156million this month.

The muted global growth should be buoyed by lower crude prices. The change in the crude landscape is largely due to the glut in the US. US oil output rose to 7.9 million barrels a day in the week ending 18 October according to the EIA. However, a further drop in crude prices will threaten the high production costs of shale.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.