The U.S. Market – a Weekly Review
Third quarter GDP came-in slightly less than expected at 2% annualized rate, following 1.7% growth in the second quarter. Output expansion was led by gains in consumer spending, government expenditure, investment in inventory and equipment. The best result was the Personal Consumption Expenditure that improved 2.6% (contributed 1.79 percentage points of the total GDP 2% growth) which is the fastest pace recorded since the end of 2006, following 2.2% in the previous three months. But housing investment declined and though exports expanded moderately, net exports slowed on higher imports rate.
University of Michigan’s consumer sentiment for the second half of October slightly deteriorated as index edged-down 2 basis points to 67.7 to be below analysts’ forecasts. Current condition index improved which confirms that from the consumers’ point of view, economic growth continues steadily. But consumer expectations index which is the leading gauge for confidence fell during the above mentioned period which implies that consumers became less optimistic.
Other economic indicators reported last week showed the housing sector continued to struggle with a slight improvement in existing and new home sales backed by lower prices and historically low mortgage rates. Durable goods orders by manufacturers gained in September as much as 3.3% after declining 1% in August, mostly on the volatile component of transportation.
Stock markets barely changed last week as investors were rather cautious before the FOMC meeting to announce a further round of quantitative easing on November 2nd and 3rd. The dollar remained also unchanged over last week but yields of government treasuries for 5, 10 and 30 years (that more or less hinted market’s future prospects for the economy) were up mostly highlighting the importance of the Fed’s monetary decisions and partly on private sector consumption data stemmed from the GDP report on Friday.
U.S. Financial Markets at a Glance
EUR/USD – Last week’s Indicators in Euro-zone Were Mostly Positive
Indicators from last week were mostly positive. Economic sentiment among the Euro-are 16-nation improved in October more than estimated to the highest level in nearly three years and industrial new orders jumped in August much more than expected suggesting production in fourth quarter may significantly improve. According to the latest Eurostat Flash Estimation, annual inflation accelerated in October to 1.9% which is the highest pace in 23 months; economists forecasted annual pace of CPI to retreat to 1.7% from 1.8% recorded in August. But as opposed to that, labor market still shows weakness; unemployment rate edged up to a new high from revised 10% in August to 10.1% in September, and the euro is traded at highest in nine months high, which may burden exporters’ performance.
USD/JPY – Indicators for the Japanese Economy were Disappointing Last Week
Last week’s indicators for the Japanese economy were disappointing. September’s retail sales annual pace slowed to 1.2% from 4.3% in August. Manufacturing PMI showed that production fell in October for the first time since May 2009, ending sixteen-month period of growth. Household spending stagnated in September, and deflation worsened as annual CPI pace slowed in September for the 19th straight month to (-1.1%). The only positive indicator was the housing starts that increased in September by 17.7% y-o-y, though pace slowed from August, figure came-in higher than economists forecasted. Bank of Japan has downgraded the country’s growth forecast, expanded its lending program and kept the overnight rate unchanged at 0-0.1% range.
GBP/USD – Economic Data was mixed last Week in the U.K.
Last week’s indicators were mixed; mortgage approval according to BOE’s data for September came-in slightly higher than expected, (unlike the British Bankers’ Association index that showed earlier last week that approvals declined), suggesting the housing sector is less weak as broadly estimated. Houses price however continued to trend down; the Nationwide Housing Price Index fell in Oct. by 0.7% to eight-month low and annual pace slowed to 1.4% from 3.1% in Sep. But bankers lending to individuals significantly declined and retail sales eased in Oct. on durable goods purchases. First estimation for third quarter GDP growth was surprising; figure came-in at 0.8% (q-o-q at annual terms) which is as twice as fast a pace than economists projected, following 1.2% growth in Q2.
Gold for immediate delivery gained 1.7% last week and for December delivery the contract price gained as much as 2.5%. The U.S. dollar remained quite flat over last week and stock markets also remained overall unchanged as investors were waiting for the Federal Reserve Monetary Committee to announce another round of monetary package to stimulate the mild economic recovery. On Friday gold price exceeded again the $1,350 level when futures contract for December delivery added as much as $15.10 or 1.1% to settle at $1357.60 an ounce; overall in October price gained 3.7% following 5% gain in September and 5.6% in August. Silver futures for December delivery rose 68.9 cents on Friday (2.9%) and closed at $24.564 an ounce, gaining 13% in October. Platinum futures for January delivery rose $15.10 (0.9%) to settle at $1,707.10 an ounce; price climbed 2.9% in October.
Major Currencies Cross Rates:
Sophie J. Fletcher
Head of Research
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