S&P 500 and NASDAQ fell last week - 13.10.2014

World markets continued to fall on Friday. S&P 500 and NASDAQ dropped 3.1% and 4.5%, respectively. This has been the largest weekly drop since May 2012. In our opinion, the main reason for that was the US weak quarter earnings reporting and the Fed’s stance regarding the unsustainable growth of the US economy. Microchip Technology reported the demand reduction for high-tech electronic devices. Afterwards the company’s stocks tumbled 12.3%, pulling down the stock prices of other IT companies from the United States and Europe. Intel stocks fell 5.1%. The trading volume on the American exchanges rose to 9.2 billion stocks, which is a quarter above the 5-day average. In the USA some financial markets are closed today for the holiday, Columbus Day, but the stock trading will still be held. There will be no macroeconomic data released.

European indices keep falling today for the fifth consecutive trading session. Last week it was promoted by weak data from Germany and the downward revision of the credit rating forecast of France by Standard & Poor's on Friday, from “stable” to “negative”. The German stock index DAX has updated the year low today. It has fallen 13% from its July high. Stoxx Europe 600 Index slipped the third week in a row, for the first time in 15 months. It hit 6-year high in mid-June, after that it started retracing downward. Currently, Stoxx Europe 600 slipped 8.5% from its recent high. We do not rule out the possibility that the expected ECB money issuing of up to 1 trillion euro may provide support for the European stock indices later. The EU macroeconomic data is not released today. The ECB officials will be giving their speeches at 12-00 and 16-00 СЕТ.

Nikkei slipped on Friday for the fourth day in a row, along with other world indices. Today there is a holiday in Japan, Health and Sports Day. Market participants believe that falling oil prices could be a positive factor for the country’s economy. Last week Nikkei slipped less than other indices, and it was 2.7%. The yen strengthened against the greenback (you can find more information about the Forex market in our weekly video overview).

This morning most commodity futures upped slightly, due to the positive data from China. The volume of exports and imports in September outperformed the forecasts. The foreign trade surplus appeared to be less than expected.

Gold and silver prices rose as world stock indices and the US dollar index fell. Investors consider precious metals to be "defensive assets". Only a third of investors expect the Fed rate hike on July 1 next year. It is considerably lower than there were in mid-September, when such investors amounted to 60%. It should be noted that physical gold inventories of the world largest fund SPDR Gold Trust reduced to the lowest level since December 2008 and amount to 759.4 tons. The gold price slipped almost 6% in September. We assume that many market participants closed their gold positions, counting on the continued growth of the stock markets.

Copper prices jumped due to the positive data from China. The imports in September rose 14.7%, compared to August, and reached 390 thousand tons. Copper imports in China increased 20% in nine months, compared to the same period of 2013.

Grain futures prices dropped on Friday. The USDA raised the US crop forecast in 2014/2015 compared to its September estimate. There is a possibility that prices would grow again after the end of retracement, since the raised crop forecasts did not exceed 1%. Moreover, the USDA cut the forecast of the remaining harvest for the season end of 2014/2015, and that means an increase in global demand for grain may be expected. Corn inventory balances were reduced 2.5% compared to the September estimate, wheat – 1.2%, and soybeans – 1%. In general, we deem that prices would be highly affected by weather conditions and, especially, El Niño hurricane forecast. Last time it was observed only in 2009.