The expansion of the air campaign against extremists in Iraq and Syria has continued with new strikes believed to have originated from bases in Turkey, including the U.S. Air Force base at Incirlik, a claim Turkey denies. Geopolitics is not the primary narrative for market sentiment, however. Concerns over the European economy’s health continue to weigh heavily on global investors’ mind after yesterday’s subpar purchasing managers index (PMI) announcements. As a result, data due out tomorrow on lending in the private sector will be closely watched for a signal that European Central Bank liquidity measures are having an impact on the euro zone’s real economy.
Starbucks consolidates in Japan. Coffee retail giant Starbucks announced today its $913.5 million acquisition of the 60.5 percent of its Japanese subsidiary that was not already owned by the parent. This purchase will retire the firm’s Japanese public stock listing and is part of a program to expand in one of the chain’s most profitable markets on a per-store basis.
Business confidence in Germany wanes. The IFO business confidence index for September fell to 104.7, below analyst predictions, versus a prior 106.3 with a contraction in surveyed companies’ expectations for the forward outlook. The reduced expectations in the private sector in the European Union’s largest economy comes as the coming winter season brings concerns over politically motivated gas market manipulation and, despite ECB efforts, a moribund credit market.
Beijing removes Sinosteel executive. Multiple media sources have reported that Jia Baojun, president of state-owned steel trading company Sinosteel Corp., has been removed from his post by authorities. Reports also noted that China’s State-owned Assets Supervision and Administration Commission had already removed him earlier this month from his role as chair of Sinosteel. The state-owned company has been under pressure as steel prices have fallen on softer demand and credit issues have arisen among smaller trading firms.
Iron ore forecast cut. In Australia the Bureau of Resources and Energy Economics today reduced projected prices for iron ore. The new estimates are for an average of $94 per metric ton this year and $105 next year. The combination of increased mining capacity and softening Chinese demand have recently pushed prices down to multiyear lows, placing a drag on Australia, the largest exporter and the world’s second-largest producer of iron ore.
U.S. new home sales expected to show pick-up. The U.S. new home sales data for August, to be released by the Census department today at 10:00 am U.S. Eastern time, is expected to rise to an annual 430,000. July data was softer than anticipated, with the Southeast region accounting for nearly all of the growth while available inventory expanded only marginally.
Oil supplies up, prices down. West Texas intermediate grade oil futures traded at their lowest point in more than a year in electronic sessions this morning as markets prepared for today’s supply report from the Energy Information Administration. The recent surge in production in North America has driven stockpiles in oil trading hub Cushing, Oklahoma, higher in recent months, with consensus forecasts for today’s report to see total inventory increase to 363 million barrels.
Portfolio Perspective: India Mutual Funds on a Rally — Peter Kohli, DMS Funds
Mutual funds investing in Indian equities have returned 39 percent this year and nearly 50 percent over the past 12 months — a remarkable reversal of fortune after lagging global markets last year. In part, the market rally comes on the back of mania following the election of the country’s new president, Narendra Modi, and the appointment of Raghuram Rajan as governor of the Reserve Bank of India.
Chinese President Xi Jinping pledged to invest $20 billion in India over the next five years during a September 18 visit with Modi in New Delhi. The leaders of the world’s two most populous countries signed 12 deals regarding trade and commerce and set aside a border dispute in the Himalayas. Japan, which Modi recently visited, has promised to invest $34 billion in India’s infrastructure over a five-year period.
Rising consumer confidence among the middle class helped boost India’s gross domestic product 5.7 percent in the second quarter of 2014 year-over-year, up from 4.6 percent in the first quarter. Key sectors of India’s economy have expanded this year: manufacturing climbed 3.5 percent during the first quarter, rebounding sharply after shrinking 1.4 percent the previous quarter; construction rose 4.8 percent, while utilities output swelled 10.2 percent.
Peter Kohli is the CEO of DMS Funds, a Leesport, Pennsylvania–based mutual fund company that specializes in emerging and frontier markets.
