Financial News

End of quarter markets dip as investors take profits

Although markets dipped at the end of the third quarter, overall investors have fared better than expected after rallying calls to save the Euro from European Central Bank chief Mario Draghi.

Investors were taking profits to push the markets slightly down after the FTSE 100 gained 4.9% in the past three months and stands 3.4% up year to date. The US stock market performed even better with an 8.3% advance in the quarter, hitting 14.5% for the year so far.

However, the start of the last quarter might be less scintillating after a wave of bad economic news was released.

Eurozone inflation is expected to go up again in September – to 2.7% from 2.6% in August.

Rising inflation is a mixed blessing for the Eurozone nations, for the cost of living is increasing, but the rise is dampening the need for quantitative easing, as both have a similar effect on the economy.

US consumer spending stalls

The European Union cites rising energy costs, up to 9.2% from 8.9% in August as the main reason for the increase.

In the US, consumer spending increased 0.5%, the largest rise since February, but concerns about jobs and low wage increases have led to consumers keeping their wallets tightly closed.

Income nudged up 0.1% – but after the effects of inflation and tax, the adjusted fall of 0.3% was the poorest performance for nearly a year.

The US economy grew at an annual rate of 1.3% in the second quarter, the government reported, down from 2% recorded in the first three months of the year, while unemployment is running at 8.1%.

In Europe, the government of new President Francois Hollande is pushing tax reforms to plug a €10 billion Euro hole in the budget, mainly by raising taxes for the rich and property owners.

Junk bonds

On the markets, the Euronext 100 fell 1.1% to 654, the German Dax was solid, down only 0.7% at 7,240, while the French Cac 40 was down 1.5% to 3,389.

In Spain the Ibex 35 index fell 1% at 7,761 as investors awaited stress test results on the country’s banks and credit rating agency Moody’s decision junking government bonds.

10-year government bonds yields fell to 5.86%, indicating optimism from investors that may still be misplaced.

Economic gloom has spread beyond Europe – Japan’s economic output fell 1.3% from July, the biggest decline in three months, a Tokyo trade ministry report has announced, while India faces at least a 6.1% of GDP budget deficit and some tough decisions about slashing subsidies on fuel and other commodities.

“We cannot overemphasise the need and urgency of fiscal consolidation. Growth is faltering and inflation seems to be embedded. The external payment situation is flashing red lights,” said a government statement.

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