The ECB left their refinancing, deposit and marginal lending rates unchanged at 0.05%, -0.2% and 0.3% respectively at their November policy meeting. In his accompanying press conference President Mario Draghi stipulated that ‘they will soon start to purchase asset-backed securities’ which ‘together with the series of targeted longer-term refinancing operations to be conducted until June 2016, will have a sizeable impact on our balance sheet, which is expected to move towards the dimensions it had at the beginning of 2012’. Scuppering rumours of discord amongst the ECB governing council, at least temporarily, Draghi stated that the decision was unanimous amongst all members. Along with noting the divergent policy paths of major central banks, both now and in the future, the news saw the Euro weaken sharply and sent equity markets to fresh session highs.
As expected, the Bank of England MPC left their key bank rate and asset purchase program steady at 0.5% and £375b respectively in November. No statement was released alongside the decision meaning internal discussions, including voting patterns, won’t be known until the minutes are released later in the month.
US jobless claims pushed lower last week with a decline to 278k reported. The reading was below the 288k pace of the previous corresponding week and expectations for a decline to 285k and left the 4-week series average at 279k, the lowest level seen since late April 2000.
Q3 non-farm productivity continued to expand in Q3, albeit at a slower pace than what was seen in Q2, with a gain of 2.0% reported. The reading was higher than the 1.5% gain expected with output, at +4.4%, outpacing a smaller 2.3% rise in total hours worked. While productivity improved, labour costs continued to lag with an increase of 0.3% reported. The reading was below expectations for an increase of 0.5% and followed a downwardly-revised 0.5% contraction in Q2.
Canada building permits jumped in September with an increase of 12.7% reported. The reading was a stark improvement on the 27.3% contraction of August and expectations for a rise of 5% and was the largest month-on-month increase recorded since June. A large 23.9% lift in non-residential permits, along with a 10.8% gain in residential units, were the chief catalysts behind the robust monthly result.
Eurozone retail PMI rebounded to 47.0 in October, above the 44.8 level of September, with the reading the highest recorded since August. Both the German and French indices posted improvements, offsetting an accelerated decline in Italy.
German factory orders rebounded modestly during September with an increase of 0.8% reported. The gain was an improvement on the upwardly-revised 4.2% decline of August but below expectations for an increase of 2.3%. Despite the gain, the annualised rate fell to -1% from +0.8%, the largest annual contraction recorded since June. A 3.7% jump in orders from abroad offset a 1% decline from home with gains in capital and intermediate goods offsetting a small contraction in consumer-related items.
German construction activity expanded for the first time in seven months in October with Markit’s PMI gauge rising to 51.5. The reading was higher than the 50.0 level of September and the highest level seen since March.
UK industrial production accelerated at a faster-than-expected pace in September with a gain of 0.6% reported. The reading, the largest month-on-month increase since February, was higher than both the downwardly-revised 0.1% decline of August and expectations for a gain of 0.4%. Despite the beat, with weaker data rolling off the series, the annual rate of change slowed to +1.5% from +2.2%. Manufacturing production rose by 0.4%, beating forecasts for a rise of 0.3%, with the annual rate falling to +2.9% from +4.0% in August.
UK house prices unexpectedly dipped in October with the Halifax hose price index falling 0.4%. The decline, the first since June, was below the downwardly-revised 0.4% gain of September and expectations for an increase of 0.4% and left the annual rate of change, averaged over the past three months, at +8.8%, the lowest level seen since June.
The UK economy continued to expand modestly in the three months to October, at least according to the latest estimate from the NIESR, with growth of 0.7% predicted. The result was in line with the rate seen previously in the three months to September.
The Day Ahead (AEDT)
The ASX 200 looks set to start the session firmly in the black with SPI futures pointing to a gain of 26pts on the open. Presuming the AUD doesn’t come under further significant pressure, the RBA’s quarterly SoMP looks the most likely source if it does arrive, expect financials, after dragging yesterday, to be the main source of strength today. Elsewhere keep an eye on the materials sector. Yes, the iron ore price hit another fresh 5-year low overnight, but with so much bad news already priced in even a modest bounce in Dalian futures will see rapid short covering, particularly amongst the junior miners.
The AUDUSD finds itself back under pressure this morning, largely as a result of continued USD strength overnight, with the pair currently fetching .8559. Unless we get a surprise from the RBA SoMP at 11.30am, it’s likely that we’ll have a quiet day of trade before the arrival of US non-farm payrolls this evening. While the momentum behind it is great, with short positioning stretched and having fallen 2.7% this week, there’s a chance we’ll see some modest short-covering take place in the latter parts of the session. Support is found at .8554 with further buying likely to emerge at .8525 and .8500 with resistance kicking in at .8580, .8625 and again at .8650
The RBA release their quarterly statement on monetary policy at 11.30am. After what can only be described as a cut-and-paste job for their November monetary policy statement, markets will be hoping for some more ‘meat on the bones’ from this more-encompassing, often market-moving release. In particular, views on developments in the housing market, the level of the Australian Dollar and outlook for the domestic economy in light of patchy economic data would be welcomed. As ever with this release, watch for changes in their GDP, unemployment and CPI forecasts. Before the excitement of that release markets will also have to digest the AIG-HIA performance of construction index for October (0930).
US non-farm payrolls for October will be released tomorrow morning at 12.30am. Markets are looking for a net increase of 235k, down from the 248k pace of September, with the unemployment rate tipped to remain steady at 5.9%. Elsewhere average hourly earnings are expected to rise 0.2% following no growth in September while the average workweek likely to remain static at 34.6 hours. Alongside the October report watch for revisions to prior data. They often occur and are usually influential.
While they will be overshadowed by the US non-farm payrolls release markets will also have to digest trade data from Germany, France and UK, industrial production figures from German, Spain and France, Canadian unemployment, French business sentiment along with Spanish CPI. On the policy front we’ll also hear from Fed Chair Janet Yellen along with Bank of England Governor Mark Carney later on this evening.