Market Update October 28

US pending home sales edged higher in September after falling 1% in August with a rise of 0.3% reported. While below expectations for an increase of 1.0%, sales from a year earlier rose +3.0%, the sharpest annual lift recorded since July last year. Sales slipped in two of the survey districts, the largest in the Midwest which has now seen 4-consecutive monthly declines, while two districts reported gains with the South logging a rise of 1.4% following a 1.5% contraction in August.

US service sector activity grew at a slower pace in October with Markit’s ‘flash’ services PMI gauge falling to 57.3. The reading, below the 58.9 level of September and expectations for a decline to 57.8, was the lowest level seen since April this year. While the employment component held steady at 4-month highs new business growth fell slightly with the index dropping to lows last seen in August.

Manufacturing activity across Texas and surrounds grew at a slightly slower pace in October with the Dallas Fed manufacturing index slipping to 10.5. The reading was below the 10.8 level of September and expectations for an increase to 11.0. While only five of thirteen survey components deteriorated during the month it was interesting to see that most of the weakness was concentrated around wages, employee numbers and the length of the average workweek.

Eurozone M3 monetary growth accelerated at the fastest pace since May 2013 in the year to September with the ECB reporting an increase of 2.5%. The reading was higher than the 2.1% rate of August and expectations for an increase of 2.2% with private-sector loans, having contracted for the past 29 months, improving to -1.2%, the slowest annual decline since May last year.

The ECB bought €1.704b worth of covered bonds in the first week of their latest stimulus program. A long way to go to reach the €1t balance sheet expansion they are looking for? Certainly some ‘unknown’ sources at the ECB think so, at least according to Reuters, with the news agency reporting that the bank may start directly buying of sovereign bonds as soon as early 2015.

German business confidence fell for a sixth-consecutive month in October, the longest stretch of declines seen since late 2012, with the IFO expectations index slipping to 98.3. The reading was below the 99.3 level of September and median economist forecast for a decline to 99.2 and was the lowest level seen since December 2012. Mirroring the fall in the expectations measure, the current economic assessment index also deteriorated with a decline to 108.4 reported. The reading, the fourth-straight monthly decline, was below the 110.4 figure of September and expectations for a fall to 110.0 and left the index at lows last seen in May 2013. In what will come as a surprise to few, expectations and the current assessment indices topped out in April this year, the same month the Russia was first slapped with sanctions following the annexation of Crimea.

UK high street sales grew at a fast clip in October with the CBI distributive trades balance holding at +31. 48% of retailers reported sales higher than a year ago whilst 17% recorded falls, an outcome that left the survey balance at +31, above the +25 level expected. In a sign that a similar outcome is likely in November, the expected sales balance rose to a 2-month high of +31 from +26 in September.

 

The Day Ahead (AEDT)

The ASX 200 looks set to get off to weak start this morning with SPI futures pointing to a decline of 15pts on the open. With the commodities complex mixed, buying in higher-yielding names, particularly the banks, likely to slow before the NAB reports on Thursday and with the FOMC rate decision arriving later in the week, a meandering day of trade, probably around breakeven, appears the most likely outcome today.

Another forgettable performance from the AUDUSD overnight with the pair operating in a small range between .8789 to .8813 throughout. With no major domestic news or data scheduled and with the FOMC policy decision, along with US Q3 GDP, arriving on Thursday, another lacklustre session appears likely in the absence of an unexpected, market-moving headline. Support starts at the overnight low of .8789, .8775 and at .8750 with resistance kicking in at the overnight high, .8813, with further selling likely at .8822 and again above .8850.

The weekly ANZ-Roy Morgan consumer confidence survey will be released this morning at 9.30am. Elsewhere in the region we’ll receive retail trade and small business confidence from Japan, industrial profits from China along with South Korean consumer confidence.

Data releases this evening include durable goods orders, Case-Shiller house price index, consumer confidence and Richmond Fed manufacturing index from the States, German import prices along with Italian business confidence.

 

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