Overnight Points of Interest

Posted by Graham Parlane on 29 October 2014

Good morning

Ahead

# ANZ NZ Business Confidence

# U.S. FOMC Statement & Fed Funds Rate

Overnight

# European stocks broke a 2 day losing streak, rebounding solidly, the Stoxx600 gaining 1% with 18 of the 19 industry groups in positive territory. A number of European blue chips reported better than expected earnings and the majority of companies have beaten expectations in the third-quarter earnings season to date. Meanwhile U.S stocks put in a 4th straight day of strong gains with the various bourses going out on their highs. The Dow gained 1.12%, the S&P 500 added 1.19%, and the Nasdaq a stiff 1.75% gain. Research shows an overwhelming bias for stocks to rise pre Fed FOMC announcements, not just in the post GFC easy money era. Small-cap stocks, energy shares and technology stocks posted the strongest gains, and safe-haven investments such as Treasury’s and utility stocks declined.

# U.S. data was mixed with weak durable goods orders but a strong consumer confidence reading. New orders for capital goods by U.S. businesses recorded their biggest drop in 8 months in September, non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 1.7 % last month, the largest decline since January of this year. The decline in core capital goods orders, which confounded Wall Street's expectations for a 0.6% increase, is at odds with business surveys that have showed increased business appetite for capital investment.

# U.S. consumer confidence rebounded strongly in October, hitting a 7 year high as solid job gains raised expectations for economic growth. The confidence index climbed to 94.5, the strongest reading since October 2007 and the start of the Great Recession a few months later. This month's gains reversed a revised decline to 89 in September from 93.4 in August. Job gains and falling gasoline prices have helped to improve sentiment, despite muted economic growth in Europe and China that has fuelled volatility in financial markets.

# The USD made an outsized reaction to the weak durable goods orders, being is highly suggestive of current positioning (long dollars) which is backed up by IMM data. The NZD, AUD and CAD were the primary beneficiaries and whilst stronger this morning they are well off their overnight highs.

# U.S. 10 year bond yields dipped to 2.25% on the durable goods release but regained prior levels and some, to end up a touch at 2.29%.

# The Swedish Riksbank surprised consensus by cutting its interest rate 25bps, to 0.0%. Another in a long line of Central Banks who have tried, but failed to sustain rate hikes, post the GFC. It had raised rates from 0.25% to a peak of 2.00% in 2011. Thought provoking indeed given the current situation in NZ and in front of tomorrow’s looming OCR decision.