SCOREBOARD: Eye of the storm

As US markets weathered a historic closure there were strong movements on the commodities front.

US markets were closed last night and now look set to be closed again tonight – for the first time since 1888 that weather caused a two day shutdown of the exchange. It’s all about Hurricane Sandy and US landfall is expected as a sort of category 1 hurricane in the early evening, which makes around 0900 AEDT Australian time. Normally category 1 hurricanes aren’t expected to cause much damage, with winds of about 145km – just to trees and mobile homes etc. However Sandy is mixing with a winter-time low pressure area which makes its impact harder to predict – no core as you see with a tropical cyclone.

The effect of the storm is over a much wider area for instance and with no core, it’s harder to pinpoint where exactly the energy of the storm is strongest. So far a hurricane warning covers pretty much the whole East Coat and within that, we can expect flash flooding, hurricane or gale force winds – storms. Obviously the heavy population density in some areas lifts the probability of severe damage or fatalities. So evacuations have occurred, power has been taken out and the US authorities are bracing for bad outcomes – "Sandy Expected to Bring Life-Threatening Storm Surge, Coastal Hurricane Winds, as Well as Heavy Appalachian Snows” is the headline at the National Weather Service.

While US markets were closed we did see some action on the commodities front. Gasoline futures for instance were up 4 per cent as some East Coast refineries closed, but crude more broadly fell about 1.3 per cent to $85.22 (WTI). Gold was then down a buck or two to $US1709, while copper fell 1.3 per cent. We also had some data which US perma-bears aren’t going to like one bit.

So we saw some strong spending figures come out of the US overnight with spending rising by 0.8 per cent in September – this matches a bunch of other data and importantly, the GDP figures that we saw, which show consumer spending is strong. Incomes growth is still good, rising 0.4 per cent although obviously not as high as spending. So the savings rate fell to 3.3 per cent from 3.7 per cent which is its lowest level since November 2011. On the inflation front, headline consumption deflator rose 0.4 per cent to be 1.7 per cent higher over the year, while core rose 0.1 per cent to be 1.7 per cent higher. This is now the bottom of the Fed's comfort zone, stated comfort zone of 1.7 per cent – 2 per cent, which is obviously not consistent with ultra-low rates and QE infinity. Common sense would tell you that when inflation is already within your stated comfort zone, rates should be more neutral – maybe just easy or very easy as a compromise – certainly not ultra-easy.

Over in Europe, equities fell from the open, most of that in their own time. In fact in the US session stocks actually rebounded some. At the close the Dax was off 0.4 per cent, the CaC was down 0.8 per cent, while the FTSE100 fell 0.2 per cent. There wasn’t a great deal of news flow here, same old really, with Spain’s prime minister restating that his country does not/would not need a bailout. The market didn’t seem to mind too much as the Spanish 10-year was little changed at 5.64 per cent. Note that the Italian prime minister said the same thing, although Italy’s bonds jumped 10bps to 4.95 per cent. I suspect this has more to do with ex Italian Prime Minister Silvio Berlusconi (who has a majority in parliament) who said he may withdraw support for the unelected Prime Minister Mario Monti – which would mean new elections would have to be held. The euro was the down almost 30 pips to 1.2905, and there wasn’t a lot of forex action elsewhere either. The Australian dollar is down about 25 pips to 1.0332, sterling lost 50 pips to be at 1.6031, while the yen is at 79.83.

Looks like it’ll be a quiet day for Aussie markets then – the SPI rose 7 points (0.2 per cent) to be at 4485, while our 3s and 10s were up 2 to 4 ticks a piece – with the 3s at 97.47 and the 10s at 96.93. Looking at the calendar today we get Japanese industrial production figures at 1050 AEDT and I believe HIA’s new home sales shortly after that at 1100 AEDT. There isn’t much else for the region until tonight when the deputy RBA governor gives a speech on Australia and the world (1800 AEDT). Tonight we can expect the eurozone business climate indicator, German unemployment data and speech from the ECB chief Mario Draghi. For the US, house prices and consumer confidence are it.

Hope you have a great day…

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