Lack of confidence hits markets

POOR consumer confidence figures in the US knocked the markets sideways yesterday as the worst figures in two years spooked investors.

Having gained 1.6% on Wednesday the poor confidence survey saw markets fall with the S&P 500 down about 0.4% and the Nasdaq off 0.5% as they both lost earlier modest gain.

In Dublin, the ISEQ 100 held firm and was up by over 0.7% underpinned by the very positive economic outlook in Ireland.

In London the FTSE 100 took its cue from Wall St and fell 0.22% on the day.

Analysts suggest however the worst may be over for the US markets. They point to the fact that oil prices have fallen from over $70 per barrel to below $60, a $10 dip in three weeks.

That dip should see the confidence index bounce back in the US in the months ahead, said Peter Jackson, senior analyst at Bloxham Stockbrokers.

He said oil price “inflation” was the big worry in the US as well as concern over corporate earnings.

The sharp fall in the oil price removes a lot of the fear about inflation in the US, currently at 4.7% a 10-year-high.

Most of that is oil price driven and core inflation is pretty much under control.

Another factor that augurs well are the better than expected corporate earnings being returned in recent weeks.

These are ahead of expectations and that fact coupled with the sharp dip in the cost of oil should see markets rally in the weeks ahead, said Mr Jackson.

Since early September inflationary pressures and earnings worries have resulted in 6% being knocked from share prices in the US.

According to Mr Jackson the markets have stayed focussed on fundamentals.

The confidence index reflects the fact that oil was costing over $70 per barrel three weeks ago. That is about to change, and stock market sentiment will improve in the coming weeks, he said.

Closer to home, the Ifo business survey in Germany came in at its highest level in five years catching analysts off guard. As a result of the good outturn in Germany the euro rose to a three-week high against the dollar. In late trading it was up at around $1.21 back at levels not seen for nearly three weeks.

One of the encouraging points from the German survey was it pointed definitely to the fact that the German consumer was beginning to spend again, a fact that is highly significant, said Niall Dunne, economist, Ulster Bank Markets.

While it points to resurgence in Germany, which is good news for the euro zone, Mr Dunne said it probably points to higher ECB interest rates in the early part of next year as well.

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