Market Afternoon Recap – Nov 26th

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market recap

Key Notes on the Market

  • Australia, construction work done q/q declines -2.2%
  • UK Q3 GDP unchanged at 0.7%
  • ECB Constancio says may considering buying sovereign bonds in Q1 2015
  • ECB Constancio says QE needed if balance sheet expansion slows down
  • Sovereign bond buys to have implications on exchange rate
  • Sovereign bond buys won’t ease fiscal reform pressures on Governments
  • ECB’s monetary policy to remain accommodative for extended period of time
  • CBI reported sales 27 vs. 28 in November; December expectations rises to 38
  • US Durable goods orders m/m 0.4% vs. -0.6%; core durable goods -0.9% vs. 0.5% expectations
  • Initial jobless claims +21k to 313k vs. 288k expectations
  • Core PCE index m/m 0.2% vs. 0.2%

The European session kicked off with the German import prices m/m declining -0.3%, in line with expectations. The Euro shrugged off the weaker news as ECB Vice President Vitor Constancio was speaking at the FT Banking summit in the UK. Constancio expects to see the ECB purchase sovereign bonds in Q1 of 2015, a view that seems to be quite a contrast to previous speeches by other ECB members such as Yves Mersch who preferred to wait for the current monetary policies to take effect and Jens Weidmann a staunch opponent to QE. While the Euro first remained muted to the comments, the Euro crosses quickly reversed their gains including the EURUSD which made an intra-day high towards 1.2494.

Meanwhile, the European Commission President Jean-Claude Juncker is expected to present his €300 million plan with €21 million earmarked towards a new project called “European Fund for Strategic Investment” or EFSI for short, which is aimed to stimulate growth and jobs via investments. According to Juncker, who took over the presidency quite recently, the EFSI is aimed towards private investors who are able to invest 15 times the allotted money in an effort to reduce burden on national governments. Juncker expects the new plan will have a net effect of €315 billion and is expected to be operational by 2015, should the plan be approved.

The Australian dollar, which was showing mild signs of strength gave up its gains across the board and fell to 10 year lows against the US Dollar, trading below the 0.85 handle. Most of the AUD crosses gained early into this morning trading session.

The much anticipated second estimate for the Q3 GDP showed no change with third quarter GDP at 0.7%. However, the devil was in the details. Government spending increased more than expected to 1.1% while total business investment on a quarterly basis fell -0.7%. Exports also declined -0.4% while imports increased 1.4%.

The Cable fell below 1.57 handle on the weaker sub headlines but broadly, the GBP was largely unchanged on the news. The Sterling crosses however managed to turn around later with GBPAUD, GBPCHF and GBPJPY making relatively quick gains across the board, as noted in our pre-GDP release article.

The UK CBI quarterly measure saw business confidence decline to its weakest levels in a year. The CBI reported sales dropped to 27 vs. expectations of 28 and down from 31 previously, while December sales expectations grew to 38 vs. 31 in November.

The US session will see lots of data coming out ahead of the Thanksgiving holiday tomorrow.

Weekly jobless claims rose by 21k to 313k, more than the expected 288k claims for the week ending November 22nd. Continuing claims however dropped -17k to 2.316million.

The October durable goods orders rose 0.4%, rebounding after two months of declining. However durable goods excluding transport declined -0.9%, suggesting an overall weakness and could possibly affect the 4th quarter GDP.

Later in the day, Chicago PMI and final UoM consumer confidence and inflation expectations are due to be released followed by new and pending home sales data.

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