Investors were torn between the persisting uncertainty related to the sovereign debt crisis in the Eurozone and disappointing Chinese exports data, and the better than expected US data. The Wall Street was under pressure in the morning session as led by weakness in European bourses. Recovery was seen in the afternoon session with DJIA and S&P 500 losing -0.35% and -0.30% respectively. In the commodity sector oil slipped with the front-month contract for WTI crude oil dropping -1.57% and the equivalent Brent crude contract dipping -0.22%. Gold also slipped -0.84% during the day. The yellow metal appeared to have lost the safe-haven asset appeal in recent days.
Slovakia approved the new EFSF bill in a second vote. The market had little reaction as it's largely anticipated. Instead, investors were concerned about the news that German banks are preparing to lose as much as 60% of their Greek bond holdings, up from 21% suggested in July. Meanwhile, S&P downgraded the credit rating of Spain to AA- from AA while Fitch's trimmed ratings of several banks, namely UBS AG, Lloyds Banking Group and Royal Bank of Scotland Group. Bank of America, Morgan Stanley and Goldman Sachs have been put under review for possible downgrades.
China's trade surplus narrowed for a second consecutive month in September, dropping -12.4% from the same period in 2010. Exports rose +17.1%y/y to $169.7B, compared with a +24.5% increase in the prior month. Imports soared +20.9% to $155.2B, also moderating from a +30.2% expansion in August. Particularly, oil imports plunged -12.2% in September from a year ago. This has helped sending oil prices lower. Released in Asian session, headline CPI in China rose +6.1% y/y in September. While moderating from +6.2% in August, the reading remained above +6.0% and suggested the government will have to remain cautious in controlling inflation. Note that non-food inflation has been staying around +3%, quite a high rate as driven by robust domestic demand and increasing wages. We believe the set of data will prevent the government from implementing easing monetary policy to stimulate growth.
In the US, initial jobless claims fell -1K to 400K in the week ended October 8, taking the 4-week moving average -7K lower to 408K. The drop in continuous claims was also encouraging. Sliding -55K, the reading is now standing at 3 670K, the lowest level since April 16. Trade deficit in the US stayed flat at $45.6K in August after the July reading was revised to $45.6B from $44.8B.