- Disappointing Services PMI and Factory Orders numbers from Germany expose the core Eurozone's cracks.
- The Greek Parliamentary finance committee has agreed to fast-track the austerity bill in Parliament, as European leaders remain hopeful of a smooth passage.
- With a lack of tier 1 data from the US, focus will likely remain on the US Presidential elections, as the closing of the polls draws nearer.
Less than impressive macro data from the Eurozone failed to depress investor sentiment and as such, equity markets in Europe traded higher as market participants looked forward to US elections. Heading into the North American open, all ten equity sectors are seen in the green, with technology and financial stocks leading the pack. Still, despite the choppy price action and lack of progress on the much desired Spanish bailout, peripheral bond yield spreads are tighter, with SP/GE and IT/GE tighter by c. 6bps. EUR/USD failed to break below 1.2750 barrier level earlier in the session and since then stages an impressive recovery, partly helped by weaker macro data from the UK.
Asian equities closed with losses in a continuation of the themes in Monday's session, with participants sitting on the sidelines ahead of the key risk events of the week in the form of US elections and the Chinese leadership handover. As investors look forward to the handover of Chinese power, many have speculated that the new governing powers could be somewhat more conservative than their predecessors. Additionally, the stronger JPY in FX markets weighed on Japanese exporters. The Nikkei 225 closed with losses of 0.35%, back below the 9,000 psychological level, the Hang Seng and Shanghai Composite closed down 0.28% and 0.38% respectively.
Among likely voters in the pivotal state of Ohio, US President Obama has 50% support vs. 46% for Romney. (Ipsos poll) Obama has 48% in Virginia vs. 46% for Romney and in the swing state of Colorado Obama has 48% vs. 47% for Romney. However, the Republican candidate does have a marginal lead in Florida with 48% vs. Obama's 47%.
EU & UK Headlines
Less than impressive data from Germany has capped any firm optimism in today's European session, with the final reading for
Services PMI being revised lower, and monthly factory orders figures missing estimates:
- German Services PMI (Oct F) M/M 48.4 vs. Exp. 49.3 (Prev. 49.3)
- German Factory Orders SA (Sep) M/M -3.3% vs. Exp. -0.5% (Prev. -1.3%; Rev. -0.8%)
- German Factory Orders NSA (Sep) Y/Y -4.7% vs. Exp. -1.5% (Prev. -4.8%, Rev. -4.6%)
The German finance ministry put much of the fall in factory orders down to the dwindling growth scenario across the Eurozone. The Spanish PM Rajoy has said a rescue would mean lower borrowing costs and added that the country needs to know how much yields would fall with a rescue, adding that there would be no sense in seeking aid if yield spreads stay the same.
UK Industrial Production fell sharper than expected over September, with much of the fall in output being put down to oil and gas extraction outages due to maintenance. Despite the significant drop in production, the ONS said they do not expect the number to have a material impact on future GDP revisions.
UK Industrial Production (Sep) M/M -1.7% vs. Exp. -0.6% (Prev. -0.5%)
European stock futures trade with gains ahead of the North American crossover, moving alongside peripheral bonds as hopes remain high of a resolution to the Greek situation as the austerity bill looks to make passage through the Hellenic Parliament. The modest risk appetite is benefiting the technology and financials sector, the best performers of the European session. US stock futures are moving in line with their European counterparts, indicating a higher open on Wall Street today.
In individual equities news, BMW reported their Q3 performance premarket, with a stronger-than-expected group revenue and profit; however EBIT margins missed estimates of 9.9%, with the BMW CEO warning of headwinds ahead. As such, BMW's shares have underperformed from the open, heading into the North American crossover down 0.8%.
The AUD is the outperforming currency in today's session, after the Reserve Bank of Australia held their rates at 3.25%, where many were looking for a 25bps cut, prompting broad-based AUD strength throughout the Asian session, and continuing into today's European morning.
Additionally, the bank were somewhat more hawkish than anticipated, with a more upbeat outlook on global, particularly Chinese, growth.
The EUR weakened heading through the European open as markets remained apprehensive, however the major EUR/USD pair has reversed all the losses at the midpoint of today's trade, but remains down from Monday morning. The single currency recovered alongside aggressive buying in peripheral European paper, bringing financing costs for both Italy and Spain much closer to the German equivalent. Looking ahead in the session, the USD-index looks to be the driver ahead of the US election outcomes.
WTI and Brent crude futures trade with gains alongside the moves higher in European equities, and the softening in the USD-index. With a lack of tier 1 macroeconomic data from the US today, focus and market direction will likely remain focused on the political situation in the US, with the Presidential elections rapidly approaching their conclusion. Both spot gold and silver are moving in line with the broader commodities index, up over 0.5% respectively. As the US comes to market, attention may be paid to reports earlier in the session that the Chinese state have resumed stockpiling base metals, according to industry sources. It is worth noting that in the past, Chinese smelters had lobbied the Chinese government to stockpile industrial metals in order to support prices.