Overnight Points of Interest

Posted by Graham Parlane on 18 November 2014

Good morning from a balmy Wellington. It’s almost warm!!

Ahead

# Australian RBA Monetary Policy Meeting Minutes

# China Foreign Direct Investment

# RBA Gov. Stephens speaks

# UK CPI

# German ZEW Economic Sentiment Index

# U.S. Producer Prices

# NZ Fonterra GDT Auction

# U.S. NAHB Housing Market Index

Overnight

# Yesterday’s news that the world’s 3rd largest economy plunged into unexpected recession failed to put a lasting dent on northern hemisphere stocks. In fact European stocks ended up the most in a week, reversing the earlier Japan driven losses, after ECB boss Mario Draghi said the European Central Bank’s expanded purchase program could include government bonds. After initially falling by as much as 0.80% the Stoxx600 ended the session up 0.48%. Across the Atlantic U.S. stocks edged higher in afternoon trade sitting about 0.10% higher with half an hour to go. Equity markets seem content at this stage to hear the soothing words of Draghi and expect more supercharged stimulus from Japan’s Abe administration.

# ECB’s Draghi said Eurozone growth momentum has weakened over summer, sees gradual return of confidence among investors in Euro area, reiterates governing council unanimous in commitment to using additional unconventional instruments if needed, unconventional measures could include purchase of sovereign bonds.

# U.S. industrial production unexpectedly slipped in October whilst September’s buoyant result was downwardly revised. We always keep an eye on revisions so this combo bears close watching. Industrial production slipped to a seasonally adjusted 0.1% in October from the prior month. It followed a downwardly revised gain of 0.8% in September, which had initially been reported as a 1% increase.

# Giving hope that the industrial production report may be an outlier, manufacturing activity in New York rebounded in November so says the latest Empire State manufacturing survey. The index lifted from 6.2 to 8.5 but the reading was well below the 12 expected. The report also showed that indexes for the six-month outlook were "generally higher" in November and "conveyed a strong degree of optimism about future business conditions."

# In a slightly perverse reaction U.S. treasury yields rose, the 10 year note lifting to 2.34% from 2.28%, purportedly on the basis that the ECB’s commitment to more stimulus would safeguard global growth. This argument, which seems to have broad acceptance in the market today, seems a tenuous one in our opinion.

# What was really discussed at the G-20 then? In an op-ed in the Guardian, British PM David Cameron wrote "Six years on from the financial crash that brought the world to its knees, red warning lights are once again flashing on the dashboard of the global economy," "As I met world leaders at the G20...the problems were plain to see. The Eurozone is teetering on the brink of a possible third recession. Emerging markets...are now slowing down...while the epidemic of Ebola, conflict in the Middle East and Russia’s illegal actions in Ukraine are all adding a dangerous backdrop of instability and uncertainty."

# Iron ore extended its drop to the lowest level in 5years as slowing economic growth in China increased concern that demand from the biggest user may weaken, expanding a global oversupply. Ore with 62% content retreated 0.5% to $75.08 a dry ton, extending this year’s loss to 44%. That’s the lowest level since June 2009.