Year on Year GDP confirmed at 6.7%

19 October, 2016

European Outlook: Better earnings reports from the likes of Goldman Sachs, Bank of America, Netflix, and Johnson & Johnson bolstered Wall Street overnight. European bourses rallied upwards of 1.25% as well, expecting no let up anytime soon of central bank stimulus. Also, U.S. CPI data was a touch light on the core reading, which was likely a positive outcome for stocks too, though it had little impact on Fed rate hike thinking overall. Bonds rallied too, and Treasury yields slipped from earlier highs after the launch Saudi Arabia’s $10-15 bln multi-tranche bond offering. Strong demand for the paper saw hedges easily unwound. The 1.80% level on the 10-year also capped the upside. The dollar stumbled some, leaving USDJPY under 103.90 into the NA close. Stock markets in Asia have followed the NA session and are generally higher. Gold remains in a tight range at USD 1261 and WTI remains north of USD 50.

Chinese Data: Year on Year GDP confirmed at 6.7% with 3Q QoQ also in line at 1.8. Retail sales for September crept up to 10.7% (expectations and previous 10.6%). However, industrial production fell to 6.1% from 6.3% with expectations had been for a slight rise to 6.4%. The details show weaker exports and investments but a growing housing market and rising consumption.  New home sales grew by 43.2% in the first nine months of the year (2015 the growth was 18.25) – credit continues to roll in China.

US Data Reports: The September overall-CPI was 0.3% (median 0.3%), while the core index was 0.1% (median 0.2%). Year over year growth accelerated to 1.5% from 1.1% in September, and the core y/y growth rate was 2.2% from 2.3%. Plunging oil prices kept inflation measures depressed through last winter but we are now seeing a rebound. U.S. NAHB homebuilder sentiment index dipped 2 points to 63 in October, as expected, after surging 6 points to 65 in September. The latter was the strongest reading since October 2015 (and for this business cycle). The present single family index fell 2 points too, to 69 following the 6 point jump to 71 previously. The future index rose 1 point to 72 after the 5 point September rise to 71. The index of prospect buyer traffic slipped 1 point to 46 from 47 (revised down from 48).

Germany’s Schaeuble wants ESM to take over as fiscal watch-dog. That the Stability and Growth Pact is not worth much more than the paper it is written on is pretty evident considering that even the ECB is calling on Germany to use “its fiscal room” to boost growth, even though Germany, may be doing better than other countries, but is also facing a debt burden that is far exceeding the 60% originally laid down in the Maastricht Treaty. The European Commission, which is officially charged with overseeing the implementation of the pact and with issuing fines if necessary, has been very lenient amid intense political pressure. Against that background, German Finance Minister Schaeuble is now proposing that the ESM should take over from the politically dominated Commission to take over as fiscal watchdog. Applying the Pact to the latter may help to make the Eurozone more stable, but seems unlikely to meet with much support even though former ECB chief economist Issing warned that current levels of moral hazard are likely to lead to the failure of the single currency.

Main Macro Events Today                

BOC Policy Report and Rate Statement – No change to the current 0.50% rate setting is expected at the announcement. A cautiously constructive outlook for growth and inflation is expected which will be consistent with no change in rates for an extended period. The growth and inflation outlook should be trimmed, but recent firm economic data suggest that any reductions from the BoC will be modest. September’s announcement contained the surprise shift that risks to the inflation profile have “tilted somewhat to the downside since July.” August’s CPI confirmed this view.

UK Earnings and Employment data – Expectations are for average earnings to remain unchanged at 2.3%, claimant count to rise by 3,400 for last month and Unemployment rate also to remain unchanged at 4.9%.


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