Some Weakness Overseas - Ahead of Wall Street

Wednesday, March 12, 2014??????

With not much happening on the domestic data front, markets are responding in predictable fashion to less-than-positive headlines about global economic growth prospects. Today's weaker-than-expected factory sector data out of Europe adds to the earlier soft Chinese export numbers and the ongoing crisis in Ukraine. As a result, stocks have been down in the last two sessions and pre-open sentiment is pointing towards another weak session today.

Industrial Production in the Euro-zone came in weaker than expected today, the second month in a row of soft factory sector output, raising doubts about the strength and sustainability of the region's recovery. The shortfall wasn't widespread, with Germany and Spain showing strength while France, the Netherlands and Finland notably on the weak side.

The region's PMI surveys and retail sales numbers appeared to be indicating a lot more positive momentum, though today's report will add to the European Central Bank's growth worries. Deflation has been a real risk for the region, which the ECB has been hoping to counter with a combination of loose monetary policy and economic growth.

Today's soft European data comes after the unusually weak export numbers out of China over the weekend. The resultant growth worries are a headwind for all asset classes, but the issue has been weighing particularly heavily on industrial metals like Copper and Iron ore whose demand fluctuates with the outlook for the global economy.

Prices for these two metals have been notably weak in recent days, with the uncertain Chinese outlook pushing downward pressure on prices. Global demand is expected to still grow in 2014, but the pace of  growth will be lower than what we saw the year before.

These concerns are no doubt real, but we shouldn't lose sight of the fact that stocks have come back really strong from the January sell-off and remain not that far off the record levels reached last week. It's hardly unusual for the market to pause after a period of strong gains, particularly in a low-news backdrop. And with not much on the data docket over the coming days either, this trend will likely remain in place some more.??????

Sheraz Mian???
Director of Research