Quiet day in stocks and commodities (except gold which was up big) while USD weakened quite a bit and bonds rose on swinging macro sentiments.
Japan looks bad in almost every metric, but it seems likely the government would announce an aggressive stimulus maybe on Nov 4 or 5 as BOJ rescheduled its policy meeting (from Nov 15 and 16). BOJ might want to promptly fight off any further yen strength following FOMC announcement.
Europe data continues to impress but most of it is due to Germany.
US data continues to be – just OK. But that’s probably good enough for the markets to continue to run.
Tomorrow is a fairly busy day : Korea/Japan industrial production, Japan CPI, UK banking and credit market reports, Eurozone inflation estimate, EU unemployment rate, Swiss KOF leading indicator
But the two biggest pieces of data are US Q3 GDP and October Chicago PMI. Usually GDP is not a big deal as it is an old news, but in these days of macro uncertainty it seems to have an outsized impact. It would probably come in low-mid 2% range which is not good but good enough for the time being. If Chicago PMI comes in weak that could be grounds for a real concern as manufacturing has been the only source of strength in US. Sentiment is frazzled there after a very weak durable goods orders.
The chances are market is in holding pattern until the Fed QE2 announcement until next week.
I want to re-highlight my email from earlier today on investor sentiment:
So as I said I feel optimistic on the stocks near term. However, after seeing this chart it makes me pause because apparently everyone else is also optimistic.
Below is weekly chart of American Association of Individual Investors Survey on bullish sentiment. The most recent data just came out today.
As you see the current reading is at an extremely high level. More importantly, the last couple times when sentiment reached this high – early Jan and mid April, we saw some big sell offs follow soon after. With lukewarm fundamentals and with investor sentiment this bullish already, it makes me doubt if being long risk is a good trade at this point. I think we need to put in stop limits.
Japanese stock market continues to underperform by a wide margin.
• Bank of Japan Governor Masaaki Shirakawa said Thursday that the central bank may expand its asset purchase from the current level if the economic situation deteriorates.
• “The BOJ will examine effects and side effects of these measures and if we think find the economic situation changing significantly, we may expand the fund,” Shirakawa told reporters in Tokyo.
• BOJ might be emboldened to take even larger intervention if US’s QE announcement next week has a big impact.
German unemployment – not quite as good as expected but still very good
• Unemployment in Germany fell below 3m in October for the first time in 18 years, according to unadjusted figures released by the federal labour office.
Eurozone bank lending survey shows demand loans is robust
• The European Central Bank said net demand for loans in Europe was positive for the first time in more than two years, driven by financing needs for inventory and working capital.
• Borrowing by households also improved as more banks approved loans, signalling increased optimism about the economic situation and housing markets.
• This is in stark contrast versus US where loan demand is still weak because there is just no demand to consume or invest. Despite what all the businesses complain about lack of stimulus and Obama and whatnot the real problem is that there is no demand and there are no productive assets to invest in US.
Eurozone economic sentiment rises yet again
• The European Commission’s monthly economic sentiment indicator rose 0.9 points to 104.1 in October, a 34-month high. Analysts had forecast a smaller increase following several months of rapid growth.
• The eurozone figure concealed wide differences between the so-called “core” economies such as France and Germany, which rose, and the weaker “peripheral” group including Spain and Portugal, struggling with deep fiscal problems.
• “The eurozone growth divergence is certainly not disappearing,” said Peter Vanden Houte, economist at ING, referring to indicators in the past year that have pointed to a divergent recovery in Europe.
• The strong showing was partly down to improved expectations in the labour market, raising policymakers’ hopes that bullishness will now boost domestic demand – the weak link in the economic recovery.
US initial jobless claims – better than it has been but once again LUKEWARM
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