Asian stock markets are broadly higher

October 4, 2016

European Outlook: Asian stock markets are broadly higher, led by Japanese markets where exporters were supported by a weaker Yen. US. stock futures are also up, but FTSE 100(UK100) futures are in the red as the Pound managed to claw back some of yesterday’s sharp losses seen in the wake of May’s confirmation of a “hard Brexit”, that doesn’t make access to the single market a priority. In the Eurozone risk aversion picked up yesterday as the EUR strengthened and peripheral markets underperformed, while the DAX (Ger30) was closed for a public holiday. With the EUR weakening again and falling below 1.12 against the USD there is room for some stabilisation and Deutsche Bank shares will remain in focus as the German markets reopen. Oil prices are down on the day, but the front end WTI future remains above USD 48 per barrel. The European calendar today is relatively quiet, with only the U.K. Construction PMI and Eurozone PPI numbers.

US Data Reports: Revealed a September ISM bounce to 51.5 from a 7-month low of 49.4 in August. Yet, expectations are for a  ISM-adjusted average of the major surveys to fall to the 49 expansion-low from in January and February, which suggests a continued inventory headwind in Q3. More importantly, there was a 0.7% August construction spending drop after downward revisions that left big downside surprises for nonresidential and public construction and a troublesome 5-month string of declines for the bellwether new residential construction component. Q3 GDP growth estimates have been reduced  to 2.5% from 2.8%.

Reserve Bank Of Australia: No Change in rates. Widely anticipated, statement highlights – Global economy is growing more slowly than average, steady rate consistent with growth and inflation targets, rising AUD “could complicate economic adjustment”. Australian economy growing at moderate rate, inflation expected to remain low for some time, mixed labour market, but employment growing. Housing more subdued, and consumption growing but appears to have slowed recently.  Perhaps more dovish than expected, chance of rate cut this year receding. AUDUSD touched 0.7690 before retreating to 0.7670.   

Fedspeak: Cleveland Fed hawk Mester: in an interview with Bloomberg yesterday said that the case is compelling to raise rates in November, if the data come in as expected, while she prefers to raise rates gradually after being preemptive. As one of the dissenters from the status quo in September, this is not a surprise. Dudleyearlier noted the tepid pace of the expansion and ascribed it partly to the typically shallow nature of recoveries following a financial crisis, as well as to the constraining nature of the zero bound. And he added that zero bound also suggests the Fed should be cautious in removing accommodation, where he also cited some economists’ concerns over rising risks of a recession. He sees communication as an important challenge for central bankers, and believes better communications would help on the inflation goal — “good communication can lead to a clear understanding of the Fed’s framework.” The cautious nature of this speech is consistent with the FOMC’s decision to remain sidelined last month, but doesn’t suggest at this point, that a hike is off the table into year end.

Main Macro Events Today                

UK Construction PMI – A small decline to 49.1 from 49.2 last time is expected in today’s UK Construction PMI’s. The January high of 57.8 saw consecutive declines in to the August low of 45.9 before the rebound in September.

New Zealand  – GDT – The Global Dairy Trade data is released later today and is a key indicator for New Zealand’s balance of trade and therefore the NZD.

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