Investor sentiment feels very low at the moment with global growth concerns, particularly in emerging markets, and uncertainty on US interest rates weighing heavily on risk appetite. Europe appears to be feeling the brunt of it at the moment and most indices are now trading at September lows. The more positive start to the week was clearly nothing more than a brief bounce in an otherwise bearish period.
The absence of economic data isn’t helping matters, with investors needing some form of positive catalyst to lift the mood. Ordinarily, the prospect of US interest rates staying lower for longer could have prompted such a positive response but as is the environment we currently find ourselves in, investors instead focused on the downbeat growth and inflation forecasts and emerging markets risks.
With European indices now at the lowest levels this month, the downbeat mood could well continue and already they’re trading near the lows set in August when emerging market concerns led by a sell-off in China really took a hold of the markets. How they respond to these lows could offer real insight into whether we’re just seeing an end of summer lull in the markets or a more prolonged sell-off. A break below these lows could find European indices in bear market territory as we head into the final quarter of the year.
This is one of the quieter weeks of the month in terms of economic data and events but there are a couple of central bankers speaking today which could spark some market volatility. Nemat Shafik, Bank of England Deputy Governor, is due to speak in Edinburgh later on today and could offer insight into the position of the BoE now that the Fed has opted to hold off on raising interest rates. It has been suggested that the BoE may wait until after the Fed raises rates to do so itself but if the latter continues to delay the decision, there could be a compelling argument for the BoE to go first. While inflation remains below target, unemployment is low and wages are rising. If the BoE doesn’t want to fall behind the curve, it may be forced to act.
We’ll also hear from FOMC voting member Dennis Lockhart who we also heard from yesterday. He claimed that this year remains very much on the cards and that he is comfortable enough with inflation to initiate a hike. We can probably expect more of the same from him today.
The S&P 500 is expected to open 24 points lower, the Dow 188 points lower and the NASDAQ 62 points lower.