Once again we’ve received disappointing data from the USA as yet another ‘bell-weather’ indicator has missed economists’ expectations and by some distance. Pending home sales in the USA have fallen by 5.6%. The previous month had seen a surprise fall of 1.5% and the expectation was for a return to growth of 0.5% positive, therefore the miss at -5.6% came as quite a shock despite it ranking as a low to medium impact news event.
[quote]“Pending home sales declined for the fourth consecutive month in September, as higher mortgage interest rates and higher home prices curbed buying power, according to the National Association of Realtors. The Pending Home Sales Index,* a forward-looking indicator based on contract signings, fell 5.6 percent to 101.6 in September from a downwardly revised 107.6 in August, and is 1.2 percent below September 2012 when it was 102.8. The index is at the lowest level since December 2012 when it was 101.3; the data reflect contracts but not closings.”[/quote]
UK high street sales slump, but growth expected to return – CBI
As is their habit the UK’s trade body the CBI attempted to put a gloss of veneer on what are particularly poor results from their survey. The miss on the predicted print was spectacularly short of where economists polled and indeed the CBI itself had forecast. Despite the public relations exercise the key miss was this; the forecast was for a reading of 33, the reading was 2.
I’m sure investors and traders can draw their own conclusions of where the UK’s retail sales are heading in the critical months pre Xmas. It’s plain to see that UK shoppers are keeping their hands in their pockets with Xmas only two months away, adding more fuel to the belief that more than at any time in recent memory many consumers in the UK are living monthly wage packet to wage packet.
[quote]“42% of respondents reported that sales volumes were up on a year ago, while 39% said they were down, giving a rounded balance of +2%, well below expectations of +31%. However, retailers expect sales volumes to return to growth next month (+23%). Most sub-sectors saw a deterioration in sales growth. In particular, grocers saw the first year-on-year fall in sales volumes (-17%) in eight months. However, some sectors – such as footwear & leather (+37%) and chemists (+67%) – performed more strongly.[/quote]
[quote]“Overall, 24% of retailers said that sales volumes were above-average for the time of year, while 25% said they were below-average, giving a rounded balance of -2% – indicating that sales were broadly in line with seasonal norms 29% placed more orders with suppliers than they did a year ago and 17% placed fewer, with a resulting balance of +12% – the fourth consecutive month of modest growth.”[/quote]
More UK economic discussion came courtesy of a BoE monetary policy committee member
The Bank of England’s David Miles has warned that a rapid rise in interest rates, before unemployment falls by a “meaningful amount”, would damage the UK economy. Speaking in a BBC radio interview he stated that;
[quote]”What we’re not going to do is to increase interest rates as soon as we get a little bit of good news on the economy, such as we’ve had over the last six months, because I think that would be a pretty catastrophic strategy.”[/quote]
Is Ireland really the poster boy for austerity?
It’s fascinating how the troika and the E.U. have got away with the daylight intellectual robbery of holding up Ireland as the poster boy for how austerity supposedly ‘works’. The current debt versus GDP is circa 125%, the current deficit is a crushing 7.6% (the highest in Europe), there is no growth and mortgage arrears are creeping up again as folk struggle to make payments given the unemployment rate is still incredibly high.
As the FOMC meeting begins on Tuesday let’s not raise our hopes for any market moving information
Much has been made of the fact that this latest FOMC two day meeting, starting Tuesday, is the first since the temporary 16/18 day shutdown of the USA govt. Many commentators are mentioning the base interest rate as a possible issue, which is remarkable given that theoretically it could get lower, even penalizing through negative returns, but that’s a highly unlikely scenario.
What is more likely is that narrative concerning the current monetary easing returning. Now the govt. shutdown is in the recent past the issue of the taper will once again be back on the agenda. Most analysts are suggesting the taper will be ‘off the table’ until March at the earliest, however, there is the potential for surprise should the Fed decide to temporarily increase their asset purchases. And they have the perfect ready made excuse of the shutdown harming growth.
Market overview
The DJIA closed down 0.01% on the day, the SPX up 0.13% and the NASDAQ down 0.08%. European indices were mixed, STOXX index down 0.42%, FTSE up 0.07%, CAC down 0.48%, DAX down 0.03%. The Athens exchange once again bucked the trend by closing up 1.37%.
Commodities rallied, ICE WTI oil finished the day up 0.85% at $98.68 per barrel, NYMEX natural down 0.17% at $3.56 per therm, COMEX gold closed up 0.04% on the day at $1352.70 and silver down 0.06% at $22.52 per ounce. Oil rallied amid a drop in Libyan output and bets that central banks in America and Japan will maintain monetary stimulus.
Looking towards the European open STOXX equity index future is down 0.36%, FTSE up 0.24%, CAC down 0.46% and DAX down 0.03%. The DJIA equity index future is currently down 0.03%, SPX down 0.02% and the NASDAQ down 0.27%.
Forex focus
The pound has gained 3.1 percent during the past three months, the best performer of the 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indices, on optimism economic growth was quickening. The euro rose 1.9 percent, while the dollar weakened 2.3 percent.
The pound traded at 85.45 pence per euro late in the London session, after depreciating to 85.55 pence on Oct. 24th, the weakest level since Aug. 29th. It slid 0.9 percent last week. Sterling dropped 0.2 percent to $1.6132 after rising to $1.6257 on Oct. 23rd, the highest since Oct. 1st.
The loonie, as the Canadian dollar is known, was little changed at C$1.0445 per U.S. dollar at 5 p.m. in Toronto. One loonie buys 95.74 cents. The Canadian dollar halted its three-day slide on speculation the currency has declined too far and too fast as investors bet the Federal Reserve will maintain monetary stimulus that may devalue the U.S. dollar.
The yen slipped versus 14 of its 16 major peers. It dropped for a third day against the shared European currency, depreciating 0.2 percent to 134.68 yen per euro. The euro was little changed at $1.3789 after touching an almost two-year high of $1.3832 on Oct. 25th.
Bonds
The yield on the current two-year note maturing in September 2015 was steady at 0.303 percent, late in in New York. The price of the 0.25 percent security was little changed at 99 28/32. The yield on the benchmark 10-year note rose one basis point to 2.52 percent. The price of the 2.5 percent note due in August 2023 fell 1/8, or $1.25 per $1,000 face amount, to 99 25/32. The Treasury sold $32 billion of two-year notes at the highest demand since April, less than two weeks after a partial government shutdown raised concern of a U.S. default.
High impact news events and policy decisions that may affect market sentiment on Tuesday October 28th
Naturally most investor eyes will be fixed on any announcements from the first day of the FOMC meeting, clues as to tapering will be hawkishly observed.
Net lending to individuals in the UK should print at 2.5 billion up from 1.6 billion the previous month. Similarly mortgage approvals should rise to 65K from 62K the previous month. Retail sales in the USA are expected to print at 0.2% up, with PPI up 0.2%. Annual house prices in the USA are expected to be up 12.4% year on year.
The USA Conference Board sentiment index is expected in at 75.2 a fall from 79.7 the previous month. The bank of Canada governor Poloz is due to testify, along with Senior Deputy Governor Tiff Macklem, before the House of Commons Standing Committee on Finance, in Ottawa.
