Overnight of Interest

Posted by Graham Parlane on 17 November 2014

Ahead this week (high impact only)

Overnight

# Data released in Europe Friday offered little or no relief from the twin threats of low growth and low inflation for the zone leaving the Stoxx600 to meander to a close around par on the day. After being down -0.4% earlier the Stoxx ended the day largely unchanged off just 0.07%. Likewise U.S. stocks were little changed on the day, the S&P500 recording yet another record close (just) whilst the blue chip Dow ended slightly down. The S&P rose 0.02% to close at yet another all-time high. The Dow slid 0.1%, after closing the prior day at a record. Both gauges advanced 0.4% in the past five days to cap a fourth week of gains. The Nasdaq 100 Index added 0.3 % for a fifth day of gains. It rose 1.6% this week to a 14-year high. Interestingly volumes on the day were light at about 74% of usual traffic.

# Germany narrowly avoided a triple-dip recession event, scraping past with 0.1% growth whilst France, recorded 0.3%. Unfortunately the French figure was not so clean, buoyed mainly by public spending and inventory build-up. Italy, the currency bloc’s number 3 economy, however was not so lucky slipping back into its 3rd recession since the financial crisis struck. The Eurozone as a whole beat expectations with 0.2% growth between July and September according to the EU’s statistics office, Eurostat. It represented a slight acceleration of growth, following a 0.1% increase in GDP in the second quarter. Growth for the year now sits at 0.8% versus +0.7% forecast.

# Eurozone inflation meanwhile ticked up a fraction but still remains well south of targeted levels. The inflation rate stayed at 0.4% as expected in October, in line with the earlier flash estimate.

# U.S. retail sale data, a gauge that accounts for about one third of consumer spending, snapped back from a weak September, buoyed by bigger receipts for clothing and sporting goods. The data suggests fundamental strength as a drop in gasoline prices kept the headline gains in check. The figure came in at +0.3% against an expected +0.2% despite receipts at gasoline stations dropping 1.5%. The key reading that strips out volatile elements like gasoline, autos, building materials and food services climbed a higher-than-expected 0.5%. The gain bolstered the view that U.S. consumers are ready to play a bigger role in supporting the recent acceleration in economic growth.

# further bolstering the upbeat news stateside, consumer confidence from the University of Michigan came in at 89.4, well above expectations (87.5) and the highest reading since July 2007. Whilst most sub-indexes were buoyant an interesting note (of caution) was the future inflation expectations segment which declined, with the 1-year outlook falling to 2.6% from 2.9% and the 5-year outlook falling to 2.6% from 2.8%.

# The inflation nuance may have been one reason why the USD did not respond positively to the generally upbeat data. The USD declined against all bar the JPY. USD ‘long’ position remain near record highs suggestive that more of a shakeout is yet to come.

# The Swiss National Bank repeated its opposition to a referendum on boosting gold reserves on Saturday, saying a yes-vote would put at risk its efforts to rein in the red-hot franc against the euro for as long as necessary. The Swiss franc's rise towards a 1.20 cap against the euro is testing the Swiss central bank's resolve to restrain the surging currency, just two weeks ahead of the vote on whether it should hold more gold. "The threshold has been crucial and needs to remain in place for as long as necessary," SNB board member Zurbruegg opined. "If the initiative goes through, our capacity to intervene on currency reserves will be reduced dramatically, with unfavourable consequences for the Swiss economy."

Cheers G.