Market Update November 3

Chinese manufacturing activity cooled in October with the NBS’ PMI gauge falling to 50.8. The reading, the lowest level seen since May, was below the 51.1 level of September and expectations for an increase to 51.2. In a sign that activity may continue to cool ahead, new orders, new export orders and order backlogs, all lead indicators, deteriorated over the month.

US personal spending logged its first decline since January in September with a decline of 0.2% reported. The reading, following a disappointing read on retail sales earlier in the month, was weaker than the 0.5% increase of August and expectations for a further gain of 0.1%. While spending fell incomes growth continued to advance with an increase of 0.2% recorded. While down on the 0.3% gain of August and expectations for a similar rise in September, the figure was the ninth-consecutive month that growth has been recorded. Elsewhere core PCE inflation ticked higher by 0.1%, in line with expectations and the same increase seen in August, while the savings rate rose to 5.6% from 5.4%.

Manufacturing activity across Chicago and surrounds improved sharply in October with the ISM’s Chicago PMI gauge surging to 66.2. The reading was higher than the 60.5 figure of September and expectations for a decline to 60.0 and was the highest level seen since October 2013. Gauges on new orders and employment rose while inventory levels fell, a good sign for a potential pickup in activity in the months ahead.

US consumer confidence grew more-than-first-thought in October with the University of Michigan-Thomson Reuters consumer survey rising to 86.9. The reading, higher than both the preliminary 86.4 level released in late October and 82.5 figure of September, was the highest level seen since July 2007. The revision was driven entirely by an improved reading on the economic outlook, 79.6 from 78.4 in the preliminary estimate, which offset a small decline in current conditions measure which slipped to 98.3 from 98.9.

Canada’s economy contracted for the first time since December 2013 in August with a fall of 0.1% reported. The reading was below expectations for a flat reading overall and saw the year-on-year rate slip to 2.2% from 2.5% in July, the lowest level seen since April.

Eurozone CPI rose 0.4% in the year to October, a result that was higher than the 0.3% pace of September but in line with market expectations. While the headline rate improved, core inflation continued to ease, rising 0.7% compared to 0.8% in September, the equal-lowest level on record. Elsewhere unemployment held at 11.5% for a fourth-consecutive month in September, a result that was in line with expectations.

Italian unemployment rose unexpectedly during September with an increase to 12.6% reported. The reading, higher than the upwardly-revised 12.5% rate of August and 12.4% figure expected, was the equal-highest level in the history of the survey.

German retail sales fell by the most since May 2007 in September with a decline of 3.2% reported. Despite being lower than both the downwardly-revised 1.5% increase of August and expectations for a decline of 0.9%, with stronger data rolling off the series along with revisions, the annual pace of sales increased to 2.3%, the highest level seen since May.

French consumer spending fell 0.8% in September, largely offsetting a larger-than-first estimated 0.9% increase in August, with the annualised rate falling back to 0.2% from 1.2% seen previously.

French producer prices logged their largest month-on-month gain since November 2013 in September, +0.5%, with the annual rate rising to -1.4% from -1.6% in August. Elsewhere Italian producer prices rose 0.1%, stronger than the flat reading of August, although the annualised rate remained unchanged at -2.0%. On the consumer front prices rose 0.3% in September, below the 1.9% jump of August but higher than the 0.1% increase expected, with the year-on-year rate gaining to 0.2% from -0.1% seen previously.

 

The Day Ahead (AEDT)

The ASX 200 looks set to start the new month moderately in the black with SPI futures pointing to a gain of 8pts on the open. While the falling AUD will benefit those firms who generate a large proportion of earnings offshore, should the currency continue its slide today, it may well act as a negative as foreign investors exit, at least in the short term. The main company-specific news today arrives from Westpac with the release of their full year profit announcement. With so much good news already built in it’ll have to be a bumper number, particularly beyond the headline, to garner a positive reaction from the market. With the commodity complex looking weak any disappointment, particularly from such lofty levels, may well see the index slip into the red over the course of today’s session.

The AUDUSD has gapped lower this morning, partly on the back of the Chinese PMI miss, partly on the back of continued buying in USDJPY, with the pair currently fetching .8743. While such a move is often followed by the market ‘filling the gap’ to Friday’s closing level, with the USDJPY continuing to find support and with a raft of domestic data releases due out during today’s session, you’d suspect the data will have to come in unilaterally strong to see such a move eventuate. Support starts at .8737, .8719 and at .8700 with resistance kicking in at .8750, .8765, .8782 and again at .8800.

After a relative dearth last week the domestic economic calendar springs back to life today with the release of the AIG performance of manufacturing index, RP data/Rismark house price index, TD-MI inflation gauge, ANZ job ads, building approvals along with the latest commodity price index from the RBA.

A raft of PMI gauges will be released around the region today with manufacturing reads from China, South Korea and India, along with non-manufacturing PMI in China, set to hit the screens midway through the session.

Like Asia, manufacturing PMI reads dominate the European and US calendars this evening with figures from the Eurozone, UK, Canada and US all scheduled for release. PMI gauges aside, we’ll also receive US construction spending for September. On the policy front we’ll also hear from Charles Evans, Chicago Fed President and policy dove, along with Richard Fisher, Dallas Fed President and always-entertaining policy hawk, in the early hours of tomorrow morning.

 

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