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Global Worries Test Market Resolve   September 28 - October 2
Fri, 02 Oct 04:13 PM EST/09:13 PM GMT
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Sentiment took a turn for the worse this week as the third quarter of 2015 drew to a close. Continued worries about commodity market fallout sent mining and trading conglomerate Glencore into a tailspin on Monday, getting the week off to a shaky start. Inauspicious August and September economic data did not improve the outlook: the US September payrolls report missed expectations, Chinese industrial profits fell the most in four years in August while official and private September manufacturing PMIs (49.8 and 47.2, respectively) remained in contraction. German September CPI flat-lined and August retail sales contracted. Early in the week equities indices tested the August 'flash crash' low, but buyers returned on Friday, shaking off the jobs report. The S&P500 ended the week up 1%. Funds flowed into government bonds, with the 10-year benchmark UST yield dropping below 2% for the first time since August. The IMF foreshadowed a downgrade to global growth (its annual outlook is published next week), calling its 3.3% 2015 GDP objective set in July as no longer realistic, while the Atlanta Fed cut its US Q3 GDP tracking forecast to +0.9% from +1.8% prior.

US stock averages saw their worst quarterly performance since the third quarter of 2011, when the European debt crisis crushed financial markets. For the third quarter, the S&P 500 fell 6.9%, the DJIA dropped 7.6% and the Nasdaq declined 7.4%. Japan's Nikkei average fell 14%, its worst quarter since 2010, while the Shanghai Composite (-28%) and Bovespa (-15%) posted their worst declines since 2008. The VIX volatility index on August 24th jumped to its highest closing level since October 2011 and has remained above its long-term average of 20 since then, signaling continued demand for options to protect against stock swings. Money has flowed into lower-risk assets: the yield on the 10-year benchmark UST declined from 2.42% to around 2.02% in the quarter.

Investors dumped junk bonds again this week, driving the worst sell-off for high-yield debt since October 2011, according to an S&P Capital IQ index of high-yield debt. The average yield of high-yield ...
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