Originally published by Rivkin
Data out of China on Wednesday showed further signs of stabilisation with GDP growing at +1.8% (QoQ Q3) and +6.7% (YoY Q3) in line with market forecasts. Fixed asset investments excluding rural (YoY Sep) also met forecast of +8.2% up from +8.1% in August as did retail sales (YoY Sep) with an actual of +10.7% up from +10.6% in August. The slight disappointment was industrial production (YoY Sep) which was modestly below estimates at +6.1% vs +6.4% expected and +6.3% in August.
Despite the weaker than anticipated trade data last week, this data along with better than expected CPI & PPI data on Friday is encouraging as it shows further signs of stabilisation that should helped alleviate some of the slowdown concerns around China. Both the Yuan & Offshore Renminbi were +0.05% higher against the U.S. dollar while equity markets were lower with both the Hang Seng & CSI 300 down -0.38% & -0.15% respectively.
In the U.S. the Fed released its Beige Book which is a summary of current economic conditions where “most districts indicated a modest or moderate pace of expansion”. Outlooks were “mostly positive, with growth expected to continue at a slight to moderate pace”. Touching on the labour market it noted that “conditions remained tight, with modest employment and wage growth”. Overall the report does not present us with any new information as the U.S. economy continues to improve gradually.
Crude oil prices surged shown on the first chart below as U.S. government data showed an unexpected draw in crude oil inventories for October 14th. Markets expectations were for a +2.1 million barrel increase while the data showed an actual draw of -5.247 million barrels. Crude inventory at Cushing Oklahoma also declined more than anticipated at -1.635 million barrels vs -450k expected, distillate decreased slightly lower than forecast at -1.240 million vs -1.5 million and gasoline inventories surprised with an increase of +2.469 million vs -1.125 million expected.
While gasoline, distillate and Cushing inventories can have an impact on oil prices it is the headline figure that drives the reaction as both WTI & Brent crude oil gained +2.27% & +1.7% respectively. Elsewhere commodities were broadly higher as measured by the Thomson Reuters CRB index up +0.52%.
The U.S. dollar index finished relatively unchanged, down just -0.01% while equity markets were mixed as the S&P 500 gained +0.34% while the Nasdaq 100 was modestly lower down -0.06%. In the S&P500 gains were led by energy (+1.38%) and basic materials (+1.02%) while the defensive sectors of consumer non-cyclicals (-0.57%) and healthcare (-0.34%) led declines. Yields on U.S. government debt were little changed despite Saudi Arabia raising US$17.5 billion in U.S. dollar denominated bonds as it looks to transition its economy away from dependency on oil. U.S. two-year yields fell 1 basis point to +0.8027% while the ten-year yield was unchanged at +1.7468%.
Sticking with the U.S. we have the third and final U.S. presidential debate at midday Sydney time where both Hilary Clinton & Donald Trump will attempt to sway voters before heading to the polls on November 8th. A survey of polls by the New York Times currently has Clinton ahead with 46% vs Trump’s 40%, placing a 92% chance of Clinton winning. At the moment the market seems to agree with the Mexican Peso which is seen as a sentiment gauge gaining +0.44% overnight and +7% over the past month as Trump has slipped in the polls shown on the second chart below.
In the U.K. the GBP/USD was modestly lower despite comments from Treasury Phillip Hammond attempting to help settle nerves around a “hard Brexit”. Speaking to a parliamentary committee he said that migration controls must not harm the economy. Referring to concerns over referencing curbing immigration he noted that “I cannot conceive of any circumstances in which we would be using those controls to prevent banks, companies moving highly, qualified highly skilled people between different parts of their businesses”.
At the same time unemployment figures confirmed that the U.K. economy continues to perform stronger than anticipated with 106,000 new jobs in the three months through to August surpassing expectations for only 70,000, although down from the 174,000 previously. The unemployment rate held stable as forecast at +4.9% over the same period and average weekly earnings increased at +2.3% as expected.
The Pound finished -0.08% lower against the U.S. dollar, bond yields were little changed with the U.K. two-year yield up +1 basis point to +0.220% while the ten-year yield was unchanged at +1.085%. Equity markets posted gains with both the FTSE100 & 250 closing +0.31% & +0.26% higher respectively.
In mainland Europe the Euro is modestly weaker against the U.S. dollar, down -0.07% ahead of tonight’s monetary policy decision from the ECB. While there are zero expectations of any action at this meeting the market will be looking for any hints about a possible extension of the current QE program set to expire in March 2017. I wouldn’t necessarily expect any comments or hints around this yet as the ECB still has three more meetings after this to assess the incoming data over the next five months, which has been stabilising recently.
Locally the AUD/USD gained +0.67%, the S&P/ASX 200 index finished +0.41% higher and we can expected some further modest gains this morning with ASX SPI200 futures up +9 points in overnight trading.
Data releases:
- Australian NAB Business Confidence (QoQ Q3) 11:30am AEDT
- Australian Unemployment (MoM Sep) 11:30am AEDT
- German Producer Prices (MoM & YoY Sep) 5:00pm AEDT
- Euro-zone Current Account (MoM Aug) 7:00pm AEDT
- U.K. Retail Sales (MoM & YoY Sep) 7:30pm AEDT
- ECB Monetary Policy Decision (Oct 20) 10:45pm AEDT
- U.S. Continuing & Initial Jobless Claims (Oct 8th & 15th) 11:30pm AEDT
- U.S. Existing Home Sales (MoM Sep) 1:00am AEDT
- U.S. Leading Indicators (MoM Sep) 1:00am AEDT
This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd.
