Scoreboard: Flat feeling

Hints of a later taper failed to stir risk, while Germany looked past election joy.

I’m not really sure why equities continued to sell off last night - yes they’ve had a hard run and markets go up and down. That said it, and in a world consumed by taper talk there was some ‘good’ news as the latest Fed rhetoric suggests a taper may not come even in October. They keep this up and people are going to start doubting whether a taper is even on its way!

So to the specifics - the Atlanta Fed President (a non-voter) said overnight that “in the short time between now and the October meeting, I don’t think there will be an accumulation of enough evidence to dramatically change the picture”. That sounds fair enough and logical - I mean what will they learn really? Similarly, vice chair and New York Fed President William Dudley suggested “We have yet to see any meaningful pick-up in the economy’s forward momentum … I’d like to see economic news that makes me more confident that we will see continued improvement in the labour market. Then I would feel comfortable that the time had come to cut the pace of asset purchases”.  Now even if we get a strong payrolls result before the October meeting, that one result, if the Fed thinks the labour market is weak now (and I disagree with that view), isn’t going to change its mind.  So that makes the mid-December meeting the earliest date for a taper at this point.

The surprising thing is that markets took no cheer from that – risk on, right? I mean it’s not surprising on the theory. Yet from a behavioural perspective, it isn’t what we’ve become accustomed too.  The other thing is I find it truly hard to believe that debt ceiling talk could possibly rattle the market – again. Whatever the case, and at the bell, the S&P500 fell 0.5 per cent (1701), the Dow lost 49 points (15401) and the Nasdaq lost 0.3 per cent (3765). Financials were the key underperformer, falling more than 1 per cent, although basic materials, consumer goods and healthcare also fared poorly. Over in the commodity space gold was off almost $10 to $1322, copper fell 0.8 per cent and crude (WTI) was down 1.3 per cent ($104.7).

Now across the pond in Europe, I’m equally surprised by the price action. The German election and Merkel’s victory was full of symbolism. It’s symbolism that really should have given European stocks a boost – or at the very least seen support for euro. Europe and the institutions that bind it are much stronger now and there is less chance of the ‘95 per cent probability’ of a European implosion. Yet here again there was no joy, seemingly no recognition of this fact.

To add insult to injury, the European PMIs  generally improved. The manufacturing index remains above 50, at 51.1 in September from 51.4 the month prior, while the services PMI (which constitutes the bulk of the economy) rose to 52.1 from 50.7. There was a time that a one point fall on one of these indexes would have caused all sorts of carnage and been front page news. No longer.  Despite all the support, the euro itself actually weakened, falling about 50 pips to 1.3494 while equities too had the offer – Dax off 0.5 per cent, CaC down 0.8 per cent and FTSE100 0.6 per cent lower. I mean it is possible that euro was reacting more to ECB head Mario Draghi’s comments that the ECB could provide more liquidity to the market through more long-term purchasing operations – but then that’s not new .

Elsewhere there wasn’t too much. News wise we saw the Chicago Fed national activity index (minor data release) shoot up to 0.14 from -0.4. Price wise, the Australian dollar is little changed from yesterday afternoon at 0.9430, same with the yen, at 0.9833,while the US 10-year bond yield is off a few bps to 2.7 per cent.

Looking at the day ahead there is really nothing that will keep pundits excited today – nothing scheduled, that is. The SPI is down 0.5 per cent and there is no data here or abroad for our session that is likely to impact. Tonight it’s not much better, with the only data the German IFO survey (a great survey and worth watching, but we already know the German economy is strong). In terms of US data, we see the S&P/CaseShiller house price index (house prices surging 12 per cent so far), US consumer confidence and the Richmond Fed manufacturing index. There is some more Fed speak as well, from Pianalto and George.  

Have a great day…

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