Tonight's session has been even more boring than yesterday's, when nothing happened. Several data points came out of Europe, some better than
expected, some worse, but all massively beaten down to where any uptick is merely a dead cat bounce. Retail sales in the euro zone rose 0.1 percent in August from July, when they also gained 0.1 percent. From a year earlier, sales dropped 1.3 percent. A composite PMI of manufacturing and services industries in the euro area fell to 46.1 in September from 46.3 in August, Markit Economics said. That’s above an initial estimate of 45.9. The problem is that the PMIs of the most notable countries: Germany (at 49.7 on expectations of 50.6, lowest since March 2006), France (45.0, down from 46.1, and below consensus of an unchanged print -keep a close eye on this suddenly fast-motion trainwrecking economy), Spain, UK and Sweden all missed badly.
One chart for all those who think that Spain's GDP will actually pick up some time soon is the following correlation between Spanish PMI and GDP. Spot the sacrificed cat bounce.
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More of the same in the U.K., where the services PMI dropped to 52.2 in September from 53.7 in August. But don't call it a stagflation: it's been here for years - U.K. retail prices rose 1 percent in September from a year earlier after a 1.1 percent gain in August, the British Retail Consortium said. Some additional data via BBG - Britons injected a net 9.8 billion pounds into their housing equity in the second quarter, the Bank of England said. Elsewhere, one central bank that refuses to join the global easefest is, not surprisingly, Iceland’s central bank kept the sevenday collateral lending rate unchanged at 5.75 percent for a second meeting. None of this has been able to move the futures which are net flat with Treasuries steady, before the US ISM Services number (est. 53.4 from 53.7), the total joke of an indicator which is the ADP Employment (est. 140k from 201k) but which wrong as it always is, is the only advance hint into Friday as traders prepare for Friday’s nonfarm payrolls report (est. 115k, unemployment rate rising to 8.2%).
Some other notables from Bloomberg's Daybook recap:
- China non-manufacturing PMI fell to 53.7 in Sept. from 56.3 the previous month, the weakest pace since March 2011
- Germany’s CSU party called for the Bundesbank to be allowed to veto ECB bond purchasing programs linked to the euro crisis, Die Welt reports
- JPMorgan’s rivals may face government lawsuits claiming tens of billions of dollars in damages tied to investor losses on mortgage bonds
- VP Joe Biden’s comment that middle-class Americans have been “buried for the last four years” gives the Romney campaign an attack line before tonight’s debate
- A video of Obama talking to black clergy, where he pays homage to Rev. Jeremiah Wright, has injected race into the campaign; Wright has suggested the U.S. brought the 9/11 attacks on itself. NBC/WSJ poll shows Obama’s lead over Romney has narrowed to three points
- BofAML Corporate Master Index narrows 1bps to 167bps, new YTD tight, as $11b prices; Markit IG at 98bps, YTD low 83bps. High Yield Master II at 572bps as $2.2b prices; Markit HY at 502bps; YTD low 445bps
- EUR/USD little changed at $1.2919. Government bond yields mostly lower, peripherals spreads tighten. Crude falls. European stocks mixed; U.S. equity-index futures gain
WHAT TO WATCH: (All times New York) Economic Data
- 7:00am: MBA Mortgage Applications, Sept. 28 (prior 2.8%)
- 8:15am: ADP Employment Change, Sept. est. 140k (prior 201k)
- 10:00am: ISM Non-Manufacturing Composite, Sept. est. 53.4 (prior 53.7)
Finally, for a comprehensive rundown of all recent events, here is DB's Jim Reid:
Across the Atlantic, it was a relatively quiet day with little aside from Spanish headlines driving markets in the session. US motor vehicle sales for September came in at 14.88m (vs 14.5m expected). The print was the highest since March 2008, confirming recent strong sales data from several automakers, and even managing to beat the “cash-for-clunkers” inspired spike of August 2009. However with 10% of auto loans made at zero interest rates (Bloomberg), one needs to question the sustainability of current trends. US 10-year treasury yields continued to grind lower, finishing the day down 1.5bps to 1.60%, its lowest level since the beginning of September. Commodities were generally lower on the day, with gold and crude down 0.1% and 0.3% respectively.
In other Europe news, Greece commenced a new round of talks with the troika to discuss differences over EUR2bn of budget cuts. The Greek finance minister said he was unsure if a deal with the Troika can be completed by the Eurogroup meeting on October 8th, although parties are attempting to finalise discussions before an EU leader’s summit on October 18th (Reuters). Der Spiegel published an article questioning the legality of the ECB's OMT program, saying that concerns are “mounting” that the program finances governments and is therefore outside of the ECB's mandate. The EU's Liikanen says that the EU advisory group recommends the ringfencing of banks’ trading operations from deposit-taking businesses. Liikanen also suggested that additional capital should be set aside for property lending and some trading activities.
Overnight markets are trading with a slightly weaker tone with the Nikkei (-0.4%) and Hang Seng (-0.05%) both edging lower as we type. With Chinese and Korean markets remaining closed for holidays, news flow remains light. Australia announced a sharp deterioration in its trade balance, with the August deficit coming in at -2bn (vs 685m expected and -556m in the previous month), driven by a 3% reduction in coal and iron ore exports. Overall exports were down 3.3% from a month earlier. The AUD weakened 0.25% against the dollar on the news, and is trading at 1.0226 as we type. Also making headlines in Australia, new home sales fell 5.3%mom in August to a record low; although that doesn’t appear to be dampening sentiment with the ASX200 hitting 14-month highs today. Elsewhere in Asia, China’s official services PMI printed at 53.7 for September (down from 56.7 last month). New bank loan data rom China suggested that the country’s banks issued RMB700bn in new loans in September, roughly equal to the amount issued in August. Asian credit remains relatively well bid on strong demand side technicals, with the IG benchmark 2bps tighter.
Looking at the day ahead, Eurozone services PMIs and retail sales will be the main focus in Europe. In the US, we get ISM non-manufacturing and ADP employment numbers today. The first of three US presidential debates is scheduled today, with Obama and Romney expected to discuss domestic policies. Germany’s economy minister, Roesler, is paying a “routine visit” to his Spanish counterpart in Madrid today (Reuters), where we may get further headlines with regards to a potential Spanish bailout.