Risk Aversion Returns as Geopolitical Events Weigh on the Markets

European stock markets are moving sideways, with the DAX holding on to a marginal 0.06% gain, while the CAC is now lower Italian MIB and Spanish IBEX are outperforming after Draghi’s relatively dovish statement yesterday that suggest a very cautious scaling back of monthly asset purchases. In Asia where Hang Seng and CSI managed and a rally in Chinese companies helping to lift the MSCI Asia Pacific index to rise to the highest level since 2007. Japan and South Korea, in particular, were under pressure though, and the ASX also closed with a loss amid fears of a missile attack from North Korea. Geopolitical risks continue to hang over markets and weigh on investor sentiment.  This has allowed gold to hit fresh 1-year highs.

The ECB may have deferred the decision on the future of asset purchases until October, but that monthly purchases levels will be scaled back from January is pretty clear, even if the strong EUR means the ECB is reluctant to commit to an end date for the APP program.

UK July production and Trade data came in Near Expectations

Industrial production expanded by 0.2% month over month and by 0.4% year over year, compared to 0.5% month over month and 0.3% respective growth figures in the month prior. The median forecasts had been for 0.2% month over month and 0.3% year over year outcomes. The narrower manufacturing output figures posted growth of 0.5% month over month and 1.9% year over year, up from 0% month over month and 0.6% year over year in June. The median forecasts for manufacturing production had been for more moderate growth of 0.3% month over month and 1.6% year over year. The overall trade balance was GBP 2.7 billion, near unchanged from the GBP 2.9 billion figure for June after the latter was revised quite sharply lower, from GBP 4.6 billion.

German labor costs rose 2.3% year over year in the second quarter, with gross earnings rising 2.9% year over year and non-wage costs up 0.3% year over year. Gross earnings picked up markedly from the 1.6% year over year registered in the first quarter of the year, reflecting an increasingly tight labor market. German wage growth is above the Eurozone average and for the Eurozone as a whole though Draghi is still not happy with wage developments.