Below trend growth to continue
Welcome to Friday the thirteenth. Cautious is advised for anyone suffering from triskaidekaphobia.
Welcome to Friday the thirteenth. Cautious is advised for anyone suffering from triskaidekaphobia. But anyone thinking ECB President Mario Draghi was going to be cautious in his comments about the potential for further easing actions on 3 December was very quickly disabused of that notion.
EUR/USD quickly fell back below 1.07 on Draghi’s comments that “downside economic risks are clearly visible… inflation dynamics have somewhat weakened… and if price stability is at risk, we would act by using all the instruments available within our mandate.”
The surprise perhaps is that the break back below 1.07 was not sustained (1.07950 as we write). Here, there looks to be a now familiar cycle in train, whereby a (Euro-driven) rise in the US dollar produces fresh weakness in commodity prices which then weighs on the energy sector and pulls the broader indices into the red. The S&P 500 is down about 1%. And, as we have noted on various occasions this year, with the Euro now the pre-eminent funding currency for risk- taking, when investors rush to unwind risk trades, the single currency can often be a beneficiary as the funding currency is repaid.
Also relevant to the sell-off in commodities and oil (the latter unrelated to the mirth in the Twitter-sphere surrounding the news that the Saudi Arabia is now to be ruled by King Salmon) is the latest China loan data published about 7pm AEDT. This showed new CNY loans slumping to Y514bn from Y1050bn in September, with broad ‘Total Social Financing’ credit growth even weaker at 477b down from 1302bn. There is a suggestion this is partly related to local governments switching to cheaper forms of (bond) finance, but the news has nevertheless played to concerns about aggregate demand and commodity markets did take notice. Gold slumped to $1074, its lowest levels since early February 2010, before undergoing a bungee-jump style $15 spike in a less than a minute, when more than $500mn worth of gold futures changing hands. The rally was quickly sold.
On the Fed speaker front, it would almost be quicker to list who didn’t speak last night, and while most were on-message regarding prospects for December rates ‘lift-off’ (Bullard, Lacker, Dudley and even Evans) the fact Fed Chair Yellen made no comment about policy in opening remarks at a Fed policy conference saw some jumping to the view that this meant a move next month is still not a done deal.
As for economic data, weekly initial jobless claims held up at 276k, above the 270k expected but the JOLTS report saw a surge in job openings, to 5.526mn. from a revised 5.377mn in September.
The AUD has given back about 30 pips of its post-jobs data high (from 0.7154 to 0.7121) and which is more to do with the weakness in commodities than the scepticism expressed in the local press over the veracity of the data.
Nothing of note on the local calendar today, but we do get to hear from Fed Vice-Chair Stanley Fisher during our time zone (10:00 AEDT). The subject matter is “FX transmission to output and inflation”. Clearly a man after this scribe’s heart, since we have been on the road lately suggesting that rising Fed angst at the strength of the dollar (illustrated by the increased frequency of references in FOMC minutes – see Chart of the Day) may yet prove to be a significant constraint on the pace of Fed tightening in 2016.
The European highlight is the first estimate of Eurozone Q3 GDP (preceded by estimates for Germany and France, amongst others) and which is expected to be the same as the 0.4% final Q2 estimate. If correct this would lift year-on-year growth to 1.7% from 1.5%. In the US, we get retail sales, PPI and the preliminary University of Michigan consumer sentiment index.
Retail sales is expected to rebound after the unexpected weakness in September (-0.3% ex-autos) with headline seen +0.3% and ex-autos + 0.4%. This will be necessary to validate the FOMC’s contention that household spending has been increasing at a “solid rate” in recent months. PPI should continue to show the impact of weak oil prices and a stronger dollar with final demand PPI seen falling to -1.2% y/y from -1.1% in September. Core PPI is seen +0.1% m/m. Consumer sentiment is seen rising to 91.5 from October’s final 90.0.
On global stock markets, the S&P 500 was -0.90%. Bond markets saw US 10-years -0.79bp to 2.32%. On commodity markets, Brent crude oil -3.67% to $44.13, gold-0.3% to $1,082, iron ore -1.6% to $47.81. AUD is at 0.7125 and the o/n range has been was 0.7060 to 0.7154.
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