Overnight Points of Interest

Posted by Graham Parlane on 31 October 2014

Good morning

Ahead

# NZ Building Consents

# Japan Inflation

# UK Consumer Confidence

# Australian Private Sector Credit

# Japan Monetary Policy Statement

#BOJ Press Conference

# Eurozone Inflation

# U.S PCE Price Index

# Chicago PMI

Overnight

#European stocks advanced, reversing earlier losses, as the U.S. GDP report showed the U.S. economy expanded in the third quarter more than forecast. The Stoxx600 added 0.59% after falling as much as 1.1% earlier. Lenders had dragged shares lower earlier after European Banking Authority Chairman said balance-sheet reviews and last week’s stress tests aren’t fool proof and more may need to be done. Stateside it was pretty much straight up for the S&P500 with the market seemingly unconcerned that the era of money printing is over for now. The Dow is now back above 17,000 and the S&P close to 2,000 with strong rallies of 1.30% and 0.62% respectively. The Nasdaq was a notable underperformer up only 0.36%. Trading was disrupted mid-afternoon when a feed for quotes went down raising concerns of accuracy of some quotes.

# A strong initial reading for U.S. Q3 GDP. Gross domestic product grew at a 3.5% annual rate in the third quarter, beating expectations of a 3.0% rise. Only 6 analysts out a surveyed 87 predicted an outcome as strong. The data smoothed out the wild fluctuations for Q1 & Q2 that were affected by unseasonable weather and marks the strongest 6 month expansion of the U.S. economy since 2003. The data seemingly validates the Fed’s decision to take the economy of the oxygen of QE3. Still, some economists said the quarter’s growth numbers had a misleading shine. Business investment and consumer spending, solid throughout the recovery, dipped slightly from the Q2. The economy had been boosted by two surprise factors, a 16% spike in national defence expenditures and a shrinking trade deficit.

# The USD failed to benefit from the strong data, the market clearly already positioned long and unable to make further gains on the sharp move seen after the Fed’s upbeat commentary of the day before. None the less the U.S. looks by far away and best of the western economies right now. The NZD regained some of yesterday’s sharp losses after it was revealed that the RBNZ did not follow up their September intervention (reserve management!) activities to any significant degree in October.

# Worryingly more deflationary data was seen in Europe with German CPI inflation falling by -0.3% m/m (against expectations for a 0.1% fall), keeping the annual inflation rate at a lowly 0.7% y/y, defying analyst picks for an improvement to 0.9%. Meanwhile Spanish inflation (deflation) came in at an annualised rate of -0.2%, the two data bites keeping the heat firmly on the ECB. Hard to see how the EUR/USD can hold up in these circumstances.

# Reports from Bloomberg that the Japanese GPIF giant (US$1.3 trln) is aggressively reallocating out of fixed interest products and into stocks and offshore holdings kept the JPY weak, indeed the weakest of the majors last night. Look for a possible formal announcement today.

# Gold and Silver fell sharply with Gold slumping 2.1% to trade under US$1,200 to wipe the gains for the year. The market simply sees no reason to hold the haven right now amidst upbeat economic commentary from the Fed and a buoyant stock market. Silver tumbled to a 55 month low.

Cheers G.