Global Tensions and Fear - Ahead of Wall Street

The start of an expanded air campaign in the Iraq-Syria theater and weak data out of Europe provide the unsettling backdrop for today's trading action. The impact of the Syria air campaign on the financial markets isn't clear at this stage, but headlines about the start of a new Middle Eastern war nevertheless inject an air of geopolitical uncertainty.

The composite September PMI survey for the Euro-zone from data vendor Markit came in weaker than expected at 52.3 vs. 52.5 the month before. This is the lowest level for the survey this year and confirms investors' fears that the region's economy has lost steam, making it all the more difficult for European Central Bank to stoke some inflation.

Expectations have been high for a while now that the ECB will do ‘whatever it takes' to bring normalcy to the region's economies. Today's survey spotlights the contrast between the region's two major economies, with the German economy showing some acceleration from the month before while France losing further ground.

Today's soft Euro-zone data follows Monday's China-centric worries that reflected comments from China's minister of finance that the country wasn't planning on coming out with a major stimulus plan. Better data out of China today eases some of those worries, with the preliminary September factory sector PMI from HSBC Bank (HBC) modestly accelerating from the prior month's level at 50.5. This puts the index barely in the positive territory, but is nevertheless a welcome respite from a slew of recent negative readings on the Chinese economy, ranging from industrial production and retail sales to energy usage and the property market. Perhaps the need for a new stimulus plan isn't as dire as many in the market seemed to suggest on Monday.  

In corporate news, new rules from the U.S. Treasury Department announced on Monday aimed curbing the growing popularity of tax-inversion deals will weigh on the shares of companies like AbbVie (ABBV) which has been in the process of a $54 billion deal with Ireland's Shire (SHPG). Others affected by the change include AstraZeneca (AZN) which has been at the center of a number of speculated deals in the pharmaceutical sector.  

Sheraz Mian
Director of Research

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