Intel earnings in the crosshairs after the US close today.


MAJOR HEADLINES – PREVIOUS SESSION

  • New Zealand Aug. Retail Sales out at 1.1% MoM and 1.2% MoM ex Autos, vs. +0.5%/+0.5% expected, respectively

  • UK Sep. BRC Sales Monitor rose 4.9% YoY and same store sales rose 2.8% YoY, vs. 2.2%/-0.1% in Aug.

  • UK Sep. RICS House Price Balance rose to 22% vs. 15% expected and 10% in Aug.

  • Australia Sep. NAB Business Conditions/Confidence out at 3/14 vs. 4/18 in Aug.

  • Switzerland Sep. Producer and Import Prices rose 0.2% MoM vs. 0.1% expected

  • Sweden Sep. CPI out at 0.3% MoM vs. 0.4% expected

  • UK Sep. CPI out at 0.0% MoM and +1.1% YoY, vs. +0.3%/1.3% expected, respectively

  • UK Sep. RPI out at +0.4% MoM and -1.4% YoY vs. +0.3%/-1.5% expected, respectively

  • UK Aug. DCLG House Prices fell -5.6% YoY vs. -4.9% expected and -8.3% in Jul.

  • Germany Oct. ZEW Survey out at 56.0 vs. 58.8 expected and 57.7 in Sep.

  • EuroZone Oct. ZEW Survey out at 56.9 vs. 61.2 expected and 59.6 in Sep.

  • Canada Aug. New Housing Price rose 0.1% MoM vs. 0.2% expected


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • UK BoE's Bean to Speak (1300)

  • US Fed's Dudley to Speak (1715)

  • US Fed's Kohn to Speak (1745)

  • New Zealand Sep. REINZ House Sales (2100)

  • US Weekly ABC Consumer Confidence (2100)

  • Australia Oct. Westpac Consumer Confidence (2330)

  • Japan Sep. Domestic CGPI (2350)

  • Japan Bank of Japan Target Rate (no time given)

  • Japan Consumer Confidence (0500)

Market Comments:

Pound disappearing act continues...

The pound reached new lows for the cycle vs. the Euro after the inflation data today failed to trigger any notion that the BoE would begin to fret the implications of the weak pound and its effect on inflation. It's more than remarkable to see such low inflation readings considering the pounds remarkable fall of late. EURGBP was trading at 0.8000 a year ago - meaning the pound has weakened more than 15% in the last year, and yet the RPI retail inflation number is running negative on year-on-year comparisons? This kind of release really challenges proponents of the inflationist view, though some would argue that the 1.7% Core YoY CPI reading is still somewhat elevated relative to the average for the last 10 years. Considering the collapse of the currency, however, this is also a very mild reading. In any case, as long as risk appetite is otherwise healthy, this is a very pound-negative development as it encourages the view that the BoE can merrily keep its rates low and hope that a weak currency will help prevent the risk of deflation and revive investment in the country's manufacturing and asset base.

UK Housing

Certainly the main asset market in the UK - housing - is showing strong signs of a recovery. The best and most leading housing related survey, the RICS house price balance - shows increasing percentages of respondents reporting price rises and the likes of the DCLG survey will likely turn outright positive for year on year comparisons in the months to come.

Compared to US housing....

In the US, meanwhile, the most popular S&P/CaseShiller survey's most recent data point showed year on year comparisons still off more than -13%, and month on month readings that are only just beginning to stabilize just before an important tax incentive is about to expire at the end of November. Increasingly, however, it appears that politicians want to extend the tax credit beyond the original deadline. The bigger question for the housing market arrives somewhat later in next March, when the Fed will supposedly step back from its $1.25 trillion mortgage buying program. Housing will certainly not be the source of any recovery in end demand as the spectrum of likely outcomes for the US housing market run from stabilization at best, to large further declines at worst, as housing prices have some way to fall before they undershoot the longer term price trends.

ZEW - continued divergence in expectations vs. reality

The slightly lower than expected and lower than last month ZEW Survey of Expectations out of Germany grabbed the headlines today, but is not a particularly significant development as this fickle survey has shown little ability to predict much of anything in past cycles, even if it did begin surging higher in the months ahead of the actual equity market bottom in March. As we've indicated before, the most interesting phenomenon of note is the astounding gap between expectations and the "present situation" ZEW survey, which improved very slightly to -72.2 from -74 in August. This survey is normally a fairly consistent coincident indicator with, for example, the DAX index, and yet it has only dead cat bounced in recent months relative to the exuberant recovery in equities. Hmmm......in a recovery, sentiment about the present situation needs to be positive.

Intel earnings in focus

There are no real event risks in today's economic calendar as the focus will likely mostly center on earnings guidance from Intel today, which reports after the US close. This is a bellwether kind of company, so actual results in addition to its forward guidance will be an important test for the market - even FX - at a time of day that is not normally known for much volatility - so we should stay on our toes as the report could have sentiment implications for the next 24 hours, especially if the guidance strays into pessimistic territory, considering that the averages are perched close to the highs for the cycle.

Chart: AUDUSD

Interesting to note the reversal today after the pair pushed to strong new highs on no news in particular. The last phase of appreciation has been steeper than previous waves of action in this uptrend and the rally has outrun the support from interest rate spreads widening in favor of the Aussie. If we have an ugly day on the equity markets today or tomorrow, this pair could be in for a steep consolidation lower.

AUDUSD