Stocks Rebound as Risk Aversion Abates

European stock markets are moving higher, after a largely positive session in Asia. Hong Kong stocks outperformed and the Hang Seng closed with a gain of 0.91% after positive earnings reports, with Chinese companies leading the way and the Hang Seng China Enterprises Index outperforming. The Nikkei underperformed and was down -0.05% at the close, despite a weaker yen, but the Topix managed a 0.06% gain. In Europe, the DAX and the FTSE are up as risk appetite returned. The Italian MIB underperformed in tandem with Italian bond markets after an earth quake off the coast of Naples. The Euro Stoxx 50 and U.S. futures are higher. Oil prices are nearly unchanged at USD 47.50 per barrel.

Eurozone spreads widen as trader’s position for Draghi. The resumption of supply after the quiet summer period and Draghi’s speech at Jackson Hole have markets re-positioning. Long positions are being shaken out ahead of Draghi and Italy’s still shaky economic situation, coupled with high public and private sector debt levels have seen some turning bearish on Italian assets. Extreme weather conditions and today’s earth quake off the coast of Naples will further add to concerns about the outlook, and even if the recent economic performance has been improving. The prospect of tapering will see spreads trending wider.

German Zew Inventory Confidence Came in Weaker than Expected

German ZEW investor confidence was much weaker than expected, with the headline reading falling back to 10 from 17.5 in the previous month. The current conditions indicator still improved, and the positive headline reading still suggests that optimists outnumber pessimists, but the third consecutive decline suggests a slowdown in growth ahead, after what still looks like a strong third quarter of the year. More arguments then for the ECB to remain cautious on tapering announcements.

The UK’s CBI industrial trends survey beat expectations in the August survey, with the headline total orders reading of 13, up from 10 in July. The median forecast had been for an unchanged 10 reading. Amid the breakdown of the report, the reading of export orders rose to 11, well up on the long-run average of -19, while selling prices spiked to 19 from 9. Output growth remained strong and broad based, the CBI reports, and respondents said that they expected it to remain so over the next quarter. The report shows that the improvement in export performance has remained a benefit to the export sector, despite rising costs.