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Recovery begins after asset market carnage

Share Markets:

Risk appetites among investors improved slightly overnight, following the carnage in asset markets the previous day.

But it was a mixed night on US share markets. 

The S&P500 index is up 0.1% and the Dow Jones is down 0.2%.

Interest Rates: 

Dovish remarks from Fed speakers Bullard, Kocherlakota and Lockhart dominated the airwaves over hawk Plosser, with Bullard saying the end of QE should be delayed, but yields ground higher nevertheless. 

US 10-year treasury yields initially dipped from 2.12% to 1.98% during the London morning, but then rose to 2.18% during the next seven hours. US 2-year yields rose from 0.26% to 0.35%.

Australian interest rates rebounded; 3-year government bond future yields from 2.43% (a two-year low) to 2.57%, and 10-year yields from 3.12% to 3.27%.

Foreign Exchange: 

The US dollar index consolidated in overnight trade. EUR/USD initially fell from 1.2825 to 1.2706, but rebounded during the London afternoon to 1.2840.

USD/JPY ranged sideways between 105.50 and 106.33. The Aussie dollar had another whippy session, but ended basically where we left it last night.

The highest we saw the Aussie was yesterday morning above 0.8800. It was continually put under pressure falling through 0.8700.

The Aussie clawed back the sell off when EUR was doing the same against the USD. While there remains this uncertainty within equity markets, the Aussie will continue to be volatile within the initial range of 0.8600-0.8900.

NZD/USD fell from 0.7997 to 0.7887 and recovered to 0.7978. AUD/NZD ranged sideways between 1.0995 and 1.1040.

Commodities:

The price of West Texas Intermediate oil bounced back after dipping below US$80 a barrel for the first time since June 2012 on speculation prices fell more than justified. Gold also edged higher, after the global rout in equities in the previous trading session. 

The widely-watched basket of commodities, the CRB index, also moved higher overnight.

China:

The M2 measure of money supply grew by 12.9% in the year to September, up slightly from the previous month.

Europe:

Eurozone inflation was revised up from the flash estimate of 0.25% year-on-year to 0.31% year-on-year, which after rounding left the CPI at 0.3% year-on-year, the lowest in the current cycle.

Also, Eurozone exports fell 0.9% in August, their third decline on the trot. With imports down 3.1% in the month, the trade surplus widened from €12.7bn to €15.8bn.

New Zealand:

ANZ job ads rose by 2.4% in September, the second consecutive monthly gain. It continues to point to a relatively healthy labour market in New Zealand.

The business manufacturing PMI rose from a revised 57.0 in August to 58.1 in September, a six-month high. It points to an elevated level of activity within the manufacturing sector.

United States:

Industrial production rose 1.0% in September.

There was a 0.5% recovery in manufacturing, despite a further decline in auto output (down 7% in August and 1.4% in September), supplanted by a 3.9% surge in utility output (mostly electricity) and an above trend 1.8% mining boost.

The factory gain featured solid 1.4% rises in defence and business supplies output, although business equipment was up just 0.3% after falling 0.2% in August.

Note, auto assembly averaged 11.7mn annualised in Q2 but surged to 13.2mn in July due to shorter summer plant shutdowns.

In Aug-Sep assemblies averaged 11.7mn, so the declines since July are not excessive or a sign of weakness in the sector.

The Philadelphia Fed factory index fell from 22.5 to 20.7 in October.

That is still a healthy headline, although the detail showed orders up just modestly from 16 to 17, while shipments fell from 22 to 17 and jobs from 21 to 12, indicating steady or slower growth.

The NAHB housing market index fell from 59 to 54 in October, much weaker than consensus forecasts. Present sales and buyer traffic both fell 6 points, while future sales were down 3 points.

The US economy cannot self-sustain a recovery without housing participating, and recent housing data, while showing some pockets of strength, has not been impressive overall.

Initial jobless claims dropped 23k to 264k in the week ended 11/10. That is the lowest since March 2000, with no special factors at play.

Firms are laying off workers at historically very low rates, but hiring remains cautious.

James Bullard of the St Louis Fed noted that inflation expectations were declining and "for that reason I think that a logical policy response at this juncture may be to delay the end of the QE."



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