The markets awaiting new economic reports
Halloween marks the end of an era at the ECB with President Trichet stepping down to be replaced by Mario Draghi. Draghi in turn presides over his first ECB Council Meeting on Thursday with the market split as to whether he will cut rates in light of weak survey data and the increasing risk of a contraction in growth in the fourth quarter.
While we expect the ECB to remain on hold, the BoJ is becoming increasingly activist, standing against the new bout of yen strength through direct foreign exchange intervention and an expansion in its own Quantitative Easing programme. Dollar-yen had reached a new post-war low of 75.35 overnight, which proved the trigger for intervention to chase dollar-yen back above 79. Both the euro and sterling slipped on those dollar purchases, with euro-dollar back to $1.40, while cable eased to $1.60.
The UK economy enjoyed its own Halloween ‘nightmare’ with the Lloyds business barometer falling from +7 to -15 in October, its lowest reading since March 2009. The Hometrack house price survey showed asking prices falling by 0.2% in October, although base effects were enough to ensure that the annual rate of decline eased from 3.5% to 2.8%. The number of potential buyers registering with estate agents fell for the third consecutive month, reflecting growing consumer concern over the outlook for the economy. Given that BoE Executive Director Fisher called the risk of a contraction in output during the fourth quarter as 50:50 last week, consumers may be right to shy away from the market. Hometrack see some signs that the London market is now slowing, and a fall there will send the usual negative ripple into other regional markets.
Ahead of tomorrow’s Q3 GDP release, we get a host of credit data for the UK, with M4 money supply for September released. The market is looking for mortgage approvals to reverse much of August’s increase, easing back from 52,400 to 50,600 leaving them running around half their long-run average. Net consumer credit and lending on dwellings is also expected to remain modest.
The Chicago PMI survey has held up well compared to other surveys of US economic activity. With the Philly Fed survey unexpectedly strong in October, the Chicago Fed survey needs to rise from 60.4 to around 62 just to keep in touch. That is well above the consensus forecast for a fall to 59.0, and suggests scope for a positive surprise this afternoon. A strong increase in the Philly Fed and also a possible rise in the Dallas Fed Manufacturing Activity survey could see some upgrade to expectations over the ISM Manufacturing survey due tomorrow.
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