Overnight Points of Interest

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3 October 2014

Posted by on 3 October 2014

Good morning

Finally back on board, apologies for the downtime.

 

Ahead

# China Non-manufacturing PMI

# UK Services PMI

# U.S. Non-farm payrolls

# U.S. Unemployment Rate

# ISM Non-manufacturing PMI

 

Overnight

# European stocks were hammered, deepening their recent slump as the ECB stayed pat after easing action at previous meetings. Why investors were so disappointed is a mystery as the LTRO has just been introduced whilst the last meeting introduced even more easing measures. To have expected further action this meeting is rather strange. The EuroStoxx600 ended down a whopping 2.40%. Stock markets in Italy and Spain were also hit hard, with the main indexes in Milan and Madrid falling 3.9% and 3.1%, respectively. U.S. markets followed suit, falling on the open to the tune of about 1% but by session end had recouped all the losses to finish effectively square. The Russell index of small caps, seen as a marker of growth and beaten down of late, rallied to end up 1% to lead the comeback. The big board S&P500 ended up by the barest margin at +0.01%

# ECB chief Draghi repeated last month's pledge to boost the ECB's balance sheet back to the level it was at the beginning of 2012, an expansion some analysts put in the region of up to a trillion euros but he offered little detail on how the ECB can reach that target. Some suggest the lack of detail is indicative that he faces opposition from within the central bank.

# German 10 year yields remain on the floor at 0.90% after the ECB meeting.

# Another wonderful reading in the U.S. weekly jobless claims with the number of people who filed for unemployment assistance in the U.S. last week falling unexpectedly. Jobless benefits in the week ending September 27 decreased by 8,000 to a seasonally adjusted 287,000 from the previous week's revised total of 295,000. Analysts had expected jobless claims to rise by 2,000 to 297,000 last week. This week’s figure is amongst the 12 lowest since 1980 and spices up tonight’s Non-farm payrolls report.

# IMF chief Lagarde said she sees risk of low growth for a long time especially in EZ and is concerned that financial sector excesses may be building up especially in richer countries (due to the super low interest rate environment creating a mad dash for yield and thus risky investment behaviours).

# Sounding a tune that I suspect will become very familiar to Australians going forward, the BOE’s  Broadbent said that we should not exaggerate number of households at risk from higher interest rates, rate rises will be more gentle than in the past (that which cannot go up won’t).

# The UK Construction PMI rose to an 8 month high as British construction activity grew at one of the fastest rates on record last month, though slower rises in new orders and employment raise questions about the durability of the upturn. The Markit/CIPS construction PMI rose to 64.2 in September from 64.0 in August, beating economists' expectations for a slight fall and showing the strongest growth since the six-year high of 64.6 recorded in January. The expansion in commercial work and civil engineering projects started to catch up with booming house-building.

# The USD was broadly weaker following on from the stiff declines seen in wholesale U.S. interest rates in recent days. On Wednesday the U.S. 10 year bond yield fell hard from 2.49% to 2.38% a stiff 1 day decline. The USD/JPY for example fell in sympathy from 110.10 to 108.00 over the 2 days but like the 10 year yield which recovered somewhat from 2.38% to 2.43% the USD/JPY bounced off 108.00 to trade at 108.45 currently. The NZD/USD and AUD/USD were notable outperformers in the last 24 hours, the moves appearing to simply be sharp short covering rallies after the extended declines seen recently. In the Kiwi’s case a lack of liquidity yesterday afternoon in China’s absence likely magnified the moves.

 

Cheers G.

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