So the biggest event of the day, the week and perhaps the month came and went and the market impact was negligible; the FOMC two day meeting ended today with a whimper not a bang. And once we’d stripped away the layers of rhetoric and sophistication the sum total of all that effort over two days was no change. Interest rates remain the same, as does the Fed’s commitment to their Q.E. programme, or asset purchasing by another name.
The recorded narrative went on and on, so we’ve selected a couple of pertinent paragraphs for readers to save them the tortuous effort of having to plod through the whole statement. Actually, on second thoughts, we’ll cut those two paragraphs down to the key points;
[quote]“The committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially. In judging when to moderate the pace of asset purchases, the committee will assess whether incoming information continues to support the committee’s expectation of improvement in the labor market and inflation. Asset purchases are not on a preset course.[/quote]
[quote]”To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. Federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent and inflation no more than a half percentage point above the committee’s 2 percent longer-run goal.”[/quote]
EU warns US debt row casting a shadow over world economy
Not to be left out of the spotlight the president of the European Commission José Manuel Barroso has told the United States to resolve its debt problems for the sake of its own credibility.
[quote]”What is at stake is fundamental, not only for the American economy, but also for the credibility of the United States in the world. I hope that American democracy will work and will deliver what I think is critically important, not only for America but also for the world, because of the size and the impact of the American economy in the world.[/quote]
[quote]”One of problems that (our) crisis highlighted, and a lesson we should draw, is the issue of confidence. We have a serious problem of confidence. Investors globally have been risk averse and this is not good for a scenario where we want globally to restore sustainable growth. Everything that casts a shadow over the confidence of investors is certainly not good, neither for the country concerned, in this case the United States, nor for the global economy.”[/quote]
ADP/USA private job numbers fall
The fact that the ADP private job number creation came in below expectations is no surprise, that much trumpeted new shiny methodology is still failing, as proved by the, yep, you’ve guessed it, the revision to the previous number. And what a revision, instead of creating 166K jobs in September the ADP print was revised back to 144K. And this month’s print is 130K. Let’s just concentrate on last month’s figure as this latest print could in theory be affected by the temporary govt. shutdown. Not only were ADP approx. 20% out on their calculation, both months’ numbers were significantly below the 200K + the USA economy needs to see created over a significant period to grow.
UK cost of living crisis
Evidence of the strain on UK household finances over the last few years has been published courtesy of the Office for National Statistics on Wednesday. In its monthly economic review, the ONS concentrated on the pressure on household budgets.
[unordered_list style=”tick”]
- The ONS found no evidence of a sustained improvement in the economic position of households.
- Real Households’ Disposable Income (RHDI) static since 2009, despite GDP growth of 4.2% over this period.
- Households are spending a higher proportion of their income on gas and electricity, 3.1% in 2013, compared to 1.8% a decade ago.
- The cost of housing is also up significantly, swallowing just over fifth of household income, compared to 14.7% in 2003.
- The report also contains a reminder that while the economy is stronger, output is 2.6% below its 2007 peak, while manufacturing is 9% below its peak.
[/unordered_list]
NZ OCR unchanged at 2.5 percent
The Reserve Bank of New Zealand left the Official Cash Rate (OCR) unchanged at 2.5 percent. Reserve Bank Governor Graeme Wheeler said:
[quote]“The recovery in the United States and other major advanced economies remains patchy. Nevertheless, world prices for New Zealand’s export commodities are very high. Global long-term interest rates are still very low, but have been volatile recently. This volatility has largely been due to uncertainty as to when the Federal Reserve will exit from quantitative easing. The New Zealand economy is estimated to have grown by more than 3 percent in the year to September.”[/quote]
Market overview
Despite starting the sessions in positive territory European indices fell in late trade as the FOMC meeting finale approached its timid conclusion. The DJIA closed down 0.39%, the SPX down 0.49% and the NASDAQ down 0.55%. The STOXX index closed down 0.33%, UK FTSE up 0.04%, CAC down 0.09%, DAX down 0.13%. Spain’s IBEX closed down the most despite exiting recession, by 0.1% according to the morning’s flash data.
ICE WTI oil fell in correlation with the improved oil stockpiles in the USA, it fell to $96.66 down 1.57% on the day. NYMEX natural closed up 0.14% at $3.63 per therm. COMEX gold closed down 0.07% at $1334.60.
Looking at the equity index futures the DJIA is down 0.40%, SPX down 0.42%. European markets are scheduled to open down, STOXX by 0.46%, FTSE down 0.10%, CAC down 0.21% and DAX down 0.23%.
Forex focus
The dollar strengthened 0.3 percent to 98.51 yen late in the New York session after touching 98.68, the highest since Oct. 17th. It rose 0.1 percent to $1.3736 per euro after gaining as much as 0.4 percent and weakening 0.3 percent. Japan’s currency declined 0.3 percent to 135.32 per euro after reaching 135.51 on Oct. 22nd, the weakest level since November 2009. The U.S. Dollar Index, which calculates the greenback’s value versus its 10 major counterparts, rose 0.1 percent to 1,007.37 and reached 1,009.13, the highest in almost two weeks. The gauge fell 0.3 percent earlier. The dollar rose to the strongest level in almost two weeks versus yen after the Federal Reserve said it sees economic improvement, as it plans to maintain stimulus while it awaits evidence of further gains.
New Zealand’s dollar rose from a six-week low versus its U.S. counterpart, erasing earlier losses, after the nation’s central bank kept its benchmark rate at 2.5 percent while saying “increases will likely be required next year.” The kiwi gained 0.1 percent to 82.66 U.S. cents after sliding 0.8 percent earlier to 81.93, the weakest level since Sept. 17th.
The loonie fell 0.1 percent to C$1.0479 per U.S. dollar late in Toronto. It rose as much as 0.3 percent before falling C$1.0497, the weakest level since Sept. 6th. One loonie buys 95.43 U.S. cents. The Canadian dollar fell to a seven-week low after the Federal Reserve maintained its $85 billion in monthly bond purchases while leaving open the possibility for future reductions by saying economic growth persists.
Bonds
The 10-year note yield rose three basis points, or 0.03 percentage point, to 2.54 percent at 5 p.m. in New York. It earlier fell three basis points to 2.47 percent. The 2 percent note due in September 2020 dropped 9/32, or $2.81 per $1,000 face amount, to 99 21/32. Treasuries fell, pushing yields on benchmark 10-year notes up from almost three-month lows, after the Federal Reserve said policy makers see improvement in economic activity while maintaining monthly bond purchases.
Fundamental policy decisions and high impact news events that could affect sentiment on October 31st
In the overnight/early morning session the BOJ of Japan conducts their own version of an FOMC meeting. The results may affect the value of yen and the Nikkei. They’ll deliver a monetary policy statement, an outlook report and then conduct a press conference.
German retail sales are expected to rise by 0.5%, Italy’s employment rate is expected to climb to 12.4%, EU unemployment is expected to come in at 12%.
Canada’s GDP for the month is expected in at 0.2%, whilst USA weekly unemployment claims are expected in at 341K, this print is still liable to potentially deliver a surprise given the temporary USA govt. shutdown might still be working its way through the system.
Late in the evening two extremely important prints from China are published. The manufacturing PMI and the HSBC final manufacturing PMI.
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