Economic data was all around pretty positive everywhere, so it’s quite curious to see risk assets going nowhere today.
China’s strength is driving EM stocks as well as copper and energy. Everything else – developed market stocks, bonds, currencies, other commodities – are more or less flat.
I reckon most people are staying the heck out with US election and Fed meeting right around the corner.
I still like risk assets for the remainder of the year as well as a smallish long bet on USD to build up to a substantial position over time. BUT with investor sentiments being pretty one-sided already we really need to keep eyes on our positions.
Tomorrow morning we will see final Oct manufacturing data out of Europe which can drive European stocks. We should see continuation of strong core and weak peripheral theme. There should not be a big surprise here because prelim numbers were already released a week ago.
Korea – inflation accelerates to 4.1% from 3.6%
• This will pressure rate hike and strengthening in KRW.
China – manufacturing very strong in Oct
• As expected, China has stabilized and now on a rebound path.
• Signs of inflation is becoming more noticeable in input costs. It is likely that China will continue to tighten. While this will give the market periodic jolts this is not something we need to worry in short to medium term.
UK manufacturing shows a surprise upturn in Oct
• The latest Markit/Chartered Institute of Purchasing and Supply survey, published by Reuters, showed the headline October activity index rising to 54.9 from 53.5 in September, confounding analysts' forecast for a slowdown, with the median prediction for a 53.0 outturn.
• This was the first monthly rise in the index since May. These latest data will underscore most analysts' belief the Bank of England Monetary Policy Committee will not relaunch Quantitative Easing at this month's meeting.
US Sep - income drops but spending rises
• How can that happen? People are borrowing again.
• Personal incomes in the U.S. fell in September and spending increased, leading to a drop in household savings rate to its lowest level in more than a year.
• What this tells you is that any consumption growth has been on an extremely shaky footing.
• Meanwhile, the annual growth rate of the core PCE (personal consumption expenditure) deflator fell from 1.3% in August to 1.2% in September. This is another measure of inflation (kind of like the official CPI) the Fed watches closely and the gradual decline highlights why more quantitative easing will be announced on Wednesday.
US Oct manufacturing - expanded at the fastest pace in five months
• New Orders sub-index, generally considered to be one of the best leading indicator of manufacturing activities – rose which is a very good news.
• This ISM reading eases fear we’re sliding into any kind of recession in near future.
