Tonight’s US Q3 GDP data may provide the next movement


MAJOR HEADLINES – PREVIOUS SESSION

  • US Weekly MBA Mortgage Applications out at -12.3% vs. -13.7% prior

  • US Sep. Durable Goods Orders out at +1.0%, as expected, vs. revised -2.6% prior

  • US Sep. New Home Sales out at -3.6% m/m vs. +2.6% expected and revised +1.0% prior

  • NZ RBNZ leaves official rates unchanged at 2.5%

  • NZ Sep. Trade Balance out at –NZ$424 mln vs. –NZ$681 mln expected and revised –NZ$719 mln prior

  • AU Aug. Conference Board Leading Index out at 1.8% vs. revised 1.0% prior

  • JP Sep. Indus. Production out at +1.4% m/m, -18.9% y/y vs. +1.0%/-19.3% expected and +1.6%/-19.0% prior

  • AU Sep. HIA New Home sales out at -4.5% m/m vs. +11.4% prior

  • NZ Sep. M3 Money Supply out at +2.7% y/y vs. revised +3.6% prior

  • JP Sep. Vehicle Production out at -21.6% y/y vs. -25.9% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • EU ECB’s Trichet, Papademos to speak (0730)

  • GE Unemployment (0855)

  • UK Net Consumer Credit (0930)

  • UK Mortgage Approvals (0930)

  • UK M4 Money Supply (0930)

  • EU Business Climate Indicator (1000)

  • EU Euro-zone Confidence Indicators (1000)

  • CA Industrial Product/Raw Material Price Indices (1230)

  • US Q3 GDP (1230)

  • US Weekly Initial Jobless Claims (1230)

  • US Treasury’s Geithner to testify (1330)

Market Comments:

The sell-off in risk extended for another session overnight with a mixture of weak US data, soft equities and stop-loss triggers all combining to push the greenback higher. The USD index rallied to a high of 76.559, its highest in over 2 weeks. The question still on everyone’s lips is whether this USD rally currently presents a fresh selling opportunity or whether something more sinister is afoot. A key level on the USD index worth watching may be at the 76.62 area. Note also the S&P500 closed below the 55-day MA for the first time since July 14, a possible indicator of further weakness.

On to the data, where US durable goods orders were in line with expectations at +1.0% and it was healthy to note that the gains were not concentrated in the volatile sectors as capital goods bookings recovered. One dampener was a downward revision to the previous month’s number. Next off, the new home sales were a disappointment, falling 3.6% m/m despite the favourable financing conditions and tax credits. Inventory of unsold homes remains elevated at 7-1/2 months of demand. Coming on the back of the weak consumer confidence data yesterday, we head into tonight’s Q3 GDP numbers with a more pessimistic mood overhanging markets.

During yesterday’s session, and overnight, the central banks holding rate meetings both behaved according to market expectations, though it was the content of the accompanying statements that caused a bit of a stir.
Norges Bank hiked by 25bp but cautioned that further rate hikes may be scaled down, delayed, or even cancelled if the NOK strengthens more than expected. A tough warning call for all the NOK bulls out there. Earlier this morning the RBNZ kept rates unchanged, again as expected, but the tone of the accompanying statement was more dovish than the market had expected. The RBNZ did not adjust the rate projection path, saying that it was not expecting to tighten rates before H2 2010 and continued to express its concern that the high level of the NZD was hampering exports. NZD pressed lower, already in retreat amid the general unwinding of commodity-bloc risk trades.

In the current environment of risk aversion, Asia did not pay any attention to news that Senate’s top Democrat and Republican each voiced support for extending and expanding the soon-to-expire tax credit for first time buyers, though a vote on the measure will likely be delayed until next week. Also overnight news broke of another potential hedge fund fraud case, a la Madoff, with reports that a German fund of funds was being investigated. Another factor adding to the risk aversion theme.

With the AUD on the ropes of late, its cause was not helped by the latest articles from noted RBA watchers McCrann and Mitchell. Both are now advocating just a 25bp at next week’s meeting with Mitchell going one step further and saying that a December hike is not such a “done deal” as most people think. AUD’s peep back above the 0.90 mark proved fleeting and we spent most of the Asian session drifting lower.

Look ahead to today’s data slate, Europe has Danish, Norwegian and German unemployment, Norway retail sales, UK consumer credit and mortgage lending and Euro-zone confidence indicators on its plate while the US session will be dominated by US Q3 GDP numbers. The market is looking for a strong rebound from Q2 with the median of surveys at +3.2%. we are marginally more optimistic with a forecast of +3.6% with the impact of the “cash for clunkers” program and tax credit for first time house buyers providing a major (short-term) stimulus. We also see Canada industrial and raw material price indices and the weekly US jobless claims data.

Be nimble.