ith all eyes on the US for clues over what the Fed may do about interest rates later this month, today’s mixed US data attracted particular attention. While manufacturing PMI came surprisingly weak, construction spending was surprisingly strong.
A look at PMI for the last three months suggests that the US manufacturing sector did well in October after Fed delayed interest rate liftoff at its Sept meeting, and poorly in November as Fed members signalled toward a Dec rate hike.
It appears that the Fed may have painted itself into a corner with its indecision on interest rates starting to distort the economy rather than helping it. If the Fed is going to cause a slowdown every time they try to lift rates off zero, will they delay again this month or will they find it better to get liftoff over with so everyone can move on?
Over the next 24 hours we should get a better idea on which way things are heading with ADP payrolls, a number of FOMC members speaking plus the Beige Book Regional report. Two appearances by Fed Chair Yellen could be particularly significant to see if she is going to panic or indicate the Fed remains on track toward liftoff. Don't forget that since September, signs of dovishness have been seen as a negative for stocks while hawkish signs have been read as a positive for equity markets. It will also be interesting if Fed Governors Brainard tonight and Tarullo tomorrow remain dovish or change their stances.
While stocks in the US advanced today indicating traders don’t think the weak PMI was enough to knock the Fed off course (offset by positive Markit PMI and construction spending) resource weighted markets like Canada and Australia have been particularly strong. Mining stocks benefitted from another big bounce in copper which could carry through to today’s trading Australian stocks may also be influenced by today’s GDP report.
Australia data may also impact trading in AUD and NZD which have been on fire overnight. USD slipped back on the PMI report and with uncertainty swirling around European currencies ahead of Thursday’s ECB meeting, the resource dollars were positioned to take the most advantage of this change in sentiment.
CAD finished the day flat against USD while the S&P/TSX rallied on a combination of the metals recovery and a strong kickoff to bank earnings week from the Bank of Montreal. Canadian economic numbers were mixed with soft GDP offset by improving manufacturing PMI. It still looks like the Bank of Canada should hold steady at tomorrow’s meeting but the GDP created enough doubt and opened the door a crack to a cut enough to keep CAD training behind other resource currencies.
A surprise increase in US API oil inventories hasn’t had much of an impact on WTI which remains above $40.00, a sign the market could be getting washed out.
There have been no major announcements after the US close today.
Significant announcements released overnight include:
API Crude oil inventories 1.6 mmbbls vs street (1.5 mmbbls)
Canada Sept GDP/month (0.5%) vs street 0.0%
Canada Sept GDP/year 0.0% street 0.4%vs previous 0.9%
Canada Q3 GDP 2.3% as expected vs previous (0.5%)
US construction spending 1.0% vs street 0.6%
Germany unemployment chnge (13K) vs street (5K)
Germany unemployment rate 6.3% vs street 6.4%
Italy unemployment rate 11.5% vs street 11.7%
Eurozone unemployment rate 10.7% vs street 10.8%
Italy GDP 0.8% vs topstreet 0.9%
Manufacturing PMI reports:
Canada 48.6 vs previous 48.0
US Markit 52.8 vs street 52.6
US ISM PMI 48.6 vs street 50.5
US ISM prices paid 35.5 vs street 40.0
US ISM new orders 48.9 vs previous 52.9
Sweden 54.9 vs street 54.0
Poland 52.1 vs street 52.6
Norway 47.6 vs street 47.8
Spain 53.1 vs street 51.7
Italy 54.9 vs street 54.2
France 50.6 vs street 50.8
Germany 52.9 vs street 52.6
Greece 48.1 vs previous 47.3
UK 52.7 vs street 53.6
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
11:30 am AEDT Australia Q3 GDP street 2.4% vs previous 2.0%
12:00 am GMT UK BRC shop prices previous (1.8%)
8:00 am GMT Spain unemployment change street (6K)
9:30 am GMT UK construction PMI street 58.5
10:00 am GMT Eurozone producer prices street (3.2%)
10:00 am GMT Eurozone consumer prices street 0.2%
10:00 am GMT Eurozone core CPI street 1.1%
TBA Poland interest rate 1.50% no change expected
8:15 am EST US ADP payrolls street 190K vs previous 182K
10:00 am EST Canada BoC interest rate 0.50% no change expected
10:30 am EST US DOE crude oil inventories street (0.9 mmbbls)
10:30 am EST US DOE gasoline inventories street 1.5 mmbbls
2:00 pm EST US Fed beige book
8:00 pm EST FOMC Brainard speaking
8:10 am EST FOMC Lokchart speaking
8:30 am, 12:25 pm ESTFOMC Yellen speaking
9:00 am EST FOMC Tarullo speaking
3:40 pm EST FOMC Williams speaking
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