Suggested Taper Delay Saves the Day

Economic Data

- (BR) Brazil Oct FGV Inflation IGP-10 M/M: 0.0% v 0.0%e
- (PL) Poland Sept CPI Core M/M: 0.0% v 0.1%e; Y/Y: 0.8% v 0.7%e
- (US) Initial Jobless Claims: 264K v 290Ke; Continuing Claims: 2.389M v 2.38Me
- (CA) Canada Aug Manufacturing Sales M/M: -3.3% v -2.0%e
- (US) Sept Industrial Production M/M: 1.0% v 0.4%e; Capacity Utilization: 79.3% v 79.0%e
- (US) Oct Philadelphia Fed Business Outlook: 20.7 v 19.8e
- (US) Oct NAHB Housing Market Index: 54 v 59e
- (US) Weekly EIA Natural Gas Inventories: +94 bcf vs +88-92 bcf expected
- (US) DOE Crude: +8.92M v +2Me; Gasoline: -4M v -1.5Me; Distillate: -1.52M v -1.5Me

After plunging lower though the first hours of trading, European equities reversed and moved higher after 06:00ET thanks to talk the ECB was looking to make life easier for Greece. US futures remained beaten down and the 10-year yield briefly dipped back below 2%, however stocks zigzagged higher from the cash open, aided by soothing comments from Fed's Bullard. As of writing, the DJIA is down 0.25%, the S&P500 is down 0.30% and the Nasdaq is well off its lows, down 0.29%. Note that earlier, the Nasdaq ticked to a level 10% below its highs in early September.

Better US data is also part of the story this morning. Initial weekly claims plunged to 264K from 287K a week ago, much lower than expected, for the lowest reading since early 2000. Industrial production climbed 1% in September, thanks to a big jump in utilities output. The exception: the NAHB of homebuilder confidence slipped in October, although it was coming off a nine-year high of 59 in September.

Fickle Fed Governor James Bullard sent things higher after remarking in a TV interview that the Fed should consider delaying the end of the QE taper this month to help stem the slide in inflation expectations and give the Fed another month to gather the economic data on which rate hikes would depend. If the economy remained strong, Bullard said the taper could be completed in December. Bullard pointed out that the volatility this week was largely due to European developments.

Separately, there were conflicting reports out during the European session regarding ECB haircuts on Greek debt. A Greek official said the ECB would loosen its collateral rules in order to give Greek banks access to more liquidity, while another said the issue was only being discussed. Later the ECB clarified that it would adjust haircuts on Greece government bonds and guaranteed bank bonds used as collateral for ECB loans, but claimed it was unrelated to recent market stress.

WTI crude fell below $80 for the first time since June 2012. The front-month contract briefly saw a $70 handle before bouncing back up to around $81. There were reports that Persian Gulf States would continue to oppose any OPEC production cuts at the November meeting due to fears they could permanently lose market share. Oil ministry officials from the region are targeting crude prices around $70/bbl with the aim of making US shale production uneconomic.

Goldman's third quarter results demolished consensus expectations and the bank raised its dividend nearly 10%. Revenue was up 25% y/y and net income rose a whopping 60% y/y, driven by solid double-digit gains across the firm's segments and higher ROE. On the conference call, executives said the firm's investment banking pipeline was at highest level since 2007. Commenting on yesterday's market action, Goldman's CFO said investors were "shooting first and asking questions later."

In other earnings, shares of UnitedHeath Group are up 4.5% after the firm's third quarter earnings topped expectations and it raised its FY14 outlook. Hospital firm HCA gained as much as 3.5% after disclosing excellent preliminary third quarter results, but shares traded down to +1.5%. Netflix is among the biggest losers, down 22% after forecasting its fourth quarter EPS would be than half the expected amount. Baker Hughes was held back by a fall-off in Gulf drilling plus geopolitical tensions, and shares of BHI are down 9.5%. 

Looking Ahead

- 12:45 (US) Fed Chair Yellen in MA
- 13:00 (US) Fed's Bullard in Washington
- 16:00 (US) Aug Net Long-term TIC Flows: No est v -$18.6B prior; Total Net TIC Flows: No est v $57.7B prior
- 17:00 (CL) Chile Central Bank Interest Rate Decision: Expected to cut Overnight Rate Target by 25bps to 3.00%