Originally published by Rivkin
U.S. equities declined on Thursday on comments from regional Federal Reserve Presidents expressing the desire to raise rates sooner rather than later. US GDP was revised higher for the second quarter, providing further evidence to suggest a hike before the end of 2016 remains likely. Philadelphia Fed president Patrick Harker highlighted concerns that the Fed risked falling behind the curve and should look to get in front of inflation, stating he favoured “normalizing sooner, rather than later”.
These comments were echoed by Ester George, president of the Kansas City Fed who at a minority banking forum said that “we need to slowly but surely make process in adjusting that interest rate so we don’t get far behind”. At the same time Atlanta Fed president Dennis Lockhart stated that it “makes sense to see a little more evidence of progress” but noted that a change in policy could come before long.
A final revision of US GDP for the second quarter was revised higher to 1.4%, up from 1.1% previously, with households continue to do the heavy lifting as business investment remained relatively week. Corporate profits over the prior year were also revised to -4.3% from a previously estimated -4.9%, marking five consecutive quarters of declines. The advance goods trade balance was better than expected, as growth in exports outpaced import growth, the balance declining to –US$58.4b from –US$58.8b and estimates of –US$62.3b.
Initial jobless claims for September 24th continued to show signs of a healthy labour market, with an actual reading of 254,000 against estimates of 260,000. Readings below 300,000 are seen as consistent with a healthy market. Continuing claims for September 17th were also better than expected at 2.062m, against forecasts of 2.129m.
Both the S&P 500 & Nasdaq 100 declined -0.93% & -0.76% with all ten sectors of the S&P500 finishing trading in negative territory. Declines were led by healthcare (-1.86%), utilities (-1.45%) and financials (-1.41%) while energy was the best performer, little changed at -0.04%. The U.S. dollar strengthened +0.09% against a basket of peers while yields on government bonds declined, two-year yields down -1.6 basis points to +0.7382% while the yield on ten-year debt declined -0.9 basis points to +1.5582%.
In Germany CPI data showed that prices expanded more than forecast month-on-month in September up +0.1% with expectations to remain unchanged. Year-on-year prices also grew at 0.7%, more than the forecast for 0.6% and the previous reading of 0.4%. German bund yields gained following the release, two-year debt up 0.8 basis points to -0.687% while ten-year yields which are more sensitive to inflation gained 3 basis points to -0.117%.
German unemployment (MoM Sep) remained in line with forecasts to remain unchanged at 6.1%. The DAX closed -0.31% weaker, weighed on by fresh concerns over Deutsche Bank AG (DE:DBKGn) NA O.N. (NYSE:DB), which traded -6.31% lower. The first chart below highlights Deutsche Bank AG,which has underperformed the DAX30 index by roughly 50% this year, showing just how significant recent concerns are. The Euro Stoxx 600 also reversed initial gains to finished relatively unchanged, up just +0.04%. The EUR/USD was relatively flat, up +0.03% to 1.1220.
Oil prices continued gains following OPEC’s agreement to cut production earlier this week, both Crude Oil & Brent crude gaining +0.166% & +0.76% respectively. Copper and natural gas were also higher +0.07% & +0.24% as improving sentiment lifted commodities in general. Precious metals spot gold and Silver declined -0.09% & -0.45%.
Locally the S&P/ASX 200 gained +1.09% to close at 5,471 while the market looks set for a weaker open this morning with ASX SPI200 futures down 34 points in overnight trading.
Data releases:
- Japanese Jobless Rate (MoM Aug) 9:30am AEST
- Japanese Household Spending, Industrial Production & CPI (YoY Aug) 9:30am AEST
- Chinese Manufacturing & Non-manufacturing PMI (MoM Sep) 11:0am AE
- Australian Private Sectr Credit (YoY Aug) 11:30am AEST
- Chinese Caixin PMI Manufacturing Survey (MoM Sep) 11:45am AEST
- German Retail Sales (YoY Aug) 4:00pm AEST
- U.K. GDP (YoY Q2) 6:30pm AEST
- Euro-zone Unemployment (MoM Aug) 7:00pm AEST
- Euro-zone CPI (YoY Sep) 7:00pm AEST
- U.S. Personal Income & Spending (MoM Aug) 10:30pm AEST
- Canadian GDP (YoY Jul) 10:30pm AEST
- University of Michigan Consumer Confidence Survey – Final (MoM Sep) 12:00am AEST
- Fed’s Kaplan Speaks in Dallas 3:00am AEST
- U.S. Baker Hughes Rig Count (Sep 30) 3:00am AEST
