Overnight Sentiment: Cloudy, If Not Quite Frankenstormy

It is cloudy out there as Sandy enters the mid-Atlantic region, although for all the pre-apocalypse preparations in New York, the Frankenstorm may just be yet another dud now that its landfall is expected to come sufficiently south of NYC to make the latest round of Zone 1 evacuations about overblown as last year's Irene hysteria (of course it will be a gift from god for each and every S&P company as it will provide a perfect excuse for everyone to miss revenues and earnings in Q4). That said, Wall Street is effectively closed today for carbon-based lifeforms if not for electron ones, and a quick look at the futures bottom line, which will be open until 9:15 am Eastern, shows a lot of red, with ES down nearly 10 ticks (Shanghai down again as the same old realization seeps day after day - no major easing from the PBOC means Bernanke and company is on their own) as the Friday overnight summary is back on again: Johnny 5 must defend 1400 in ES and 1.2900 in EURUSD at all costs for just two more hours.

What has happened so far for those who aren't happily in bed expecting all hell to break loose. In a nutshell:

  • Spanish retail sales implode -12.6% from -2.0% last as VAT hike kicks in (it's all Jorge Bush' fault)
  • German government spokesman says not sure when Troika report on Greece will be complete and that no Greek OSI is coming - so no distressed exchange, and no OSI... suddenly that long GGB2 "slam-dunk" rerun not looking too hot.
  • Japan FinMin Jojima calls on BoJ to take bold policy steps to help beat deflation
  • BoE Chief Econ Dale growth to falter after Olympic boost. BoE MPC Bean Q4 may be weak, economy bumping along bottom despite Q3 data, some headwinds abating however.
  • Greek FinMin Strounaras EU/IMF lenders refuse to concede on reforms. Greek FinMin to show reforms progress at Wednesday EuroGroup meeting. Troika seeks 150 new Greek reforms - Der Spiegel.
  • ECB's Draghi Talks Down Inflation Risks, Urges Pooling of Sovereignty
  • Spain to announce bad bank details at 5pm Madrid time

And while everything may be closed, events will still happen. Here is what is on the docket for today and the rest of the week via Goldman Sachs:

One of the key focus points for FX markets next week will be Japan. Given that we continue to expect worse trade numbers out of Japan for October and coupled with the sluggish consumption stemming from the termination of the eco-car subsidies, we expect the BOJ to lower its inflation and growth outlook and announce additional easing at the upcoming meeting. We think that a JPY10tn increase in the Asset Purchase Program is the most probable. The BOJ could also commit to continuing its Asset Purchase Program until core inflation reaches 1% though this is less likely. There are a slew of other Central bank meetings this week. We expect the central banks of Norway, Russia and the Czech MPC to stay on hold and we continue to forecast a 25bp cut for Hungary and Israel by the end of this year. The RBI is expected to cut the cash reserve ratio by 25bp while leaving the repo rate unchanged at 8.00% given the weak inflation print for September.

On the data front, the next week should give us more clarity on the outlook for US growth, as we get the US Manufacturing ISM and US labor market data, including ADP Employment and Non-Farm Payrolls numbers for October. We continue to look for signs of a sustained recovery in Chinese domestic activity. We get the official China PMI and the final HSBC PMI early on Thursday morning which could be expected to pick up modestly given the strong Flash print. In October, our Advanced GLI momentum improved to 0.9%mom from September’s reading of -0.01%mom, making this the first time momentum has been positive and increasing since December 2011, a strong signal for improvement in the global cycle. Given that the Korean exports print out on Wednesday is expected to increase sharply over October, as revealed by the 20-day exports number, we will look at the Global PMI releases on Thursday to see whether GLI Momentum will remain in the ‘Expansion phase’ for our October Final GLI print with its broader set of components.

The Week Ahead

Monday October 29

  • Israel MPC: Consensus expects no change to the overnight rate at 2.25%
  • German CPI (October): With the growing tension between the Bundesbank and the ECB and given the strict ECB inflation mandate it is important to look for signs of inflation in Germany as this might reduce the scope for additional policy easing. That said, consensus expects 1.9%yoy down from 2.0%yoy from September.
  • Japan IP (September): Consensus expects -3.1%mom down from -1.6%mom in August.
  • ECB Weidmann Speech
  • Also Interesting: US Personal Income, US Personal Spending

Tuesday October 30

  • Japan Monetary Policy Meeting: The BOJ will release its biannual Outlook Report at this meeting. We expect the BOJ to lower the inflation and growth outlook and announce additional easing with the highest probability assigned to an extension of the Asset Purchase Program budget by JPY10 tn. While less likely we also think that the BOJ might commit to continuing its Asset Purchase Program until core inflation reaches 1%
  • India RBI Meeting: We and consensus expect the RBI to leave the repo rate unchanged at 8.00% given the weak inflation print in September. Consensus also expects a cut to the cash reserve ratio from 4.50% to 4.25%.
  • Spain GDP (2012-Q3): We and consensus expect the Spanish economy to contract by 0.4%qoq unchanged from 2012 Q2.
  • Hungary MPC: Consensus expects a 25bps cut to the base rate currently at 6.50%.
  • Brazil IGP Inflation (October): We expect 7.62%yoy; consensus expects 7.64%yoy down from 8.07%yoy in September.
  • US Consumer Confidence (October): We expect 74.0 and consensus expects 72.5 up from 70.3 in September
  • Fed Dudley Speech
  • ECB Draghi Speech
  • Also Interesting: Euro area Consumer Confidence, Germany Unemployment, South Korea IP

Wednesday October 31

  • Norway Monetary Policy Meeting: We and consensus expect no change deposit rates at 1.50%.
  • South Korea Exports (October): Korean 20-day exports rose sharply in October by the most in 10 months, most likely boosted by recovering China domestic activity and better US data. Consensus expects -0.5%yoy up from -2.0%yoy in September.
  • US Chicago PMI (October): We expect 51.0, consensus expects 51.4 up from 49.7 in September.
  • Also Interesting: UK Consumer Confidence, Euro Area CPI, Canada GDP, South Korea CPI

Thursday November 1

  • Global PMI’s (October)
  • Russia MPC: Consensus expects no change to the overnight auction-based repo-rate at 5.5%
  • United States ADP Employment Change (October): Consensus expects 137.5K down from 162.0K in September
  • US ISM (October): We expect the October ISM number to print lower at 50.5. Consensus expects 51.1 down from 51.5 for September.
  • Also Interesting: Czech MPC, Brazil IP, US Initial Jobless Claims, US Non-Farm Productivity

Friday November 2

  • Euro-area Manufacturing PMI (October): We expect the Euro area final estimate to print at 45.3 in line with the flash PMI. This is consistent with -0.4%qoq GDP growth in the Euro area. Consensus expects 45.3 unchanged from 45.3 in September.
  • US Non-Farm Payrolls (October): We expect the payrolls number from September to be 125K; consensus expects 124K up from 114K in August.
  • US Unemployment Rate (October): We and consensus expect 7.9% up from 7.8% in September

* * *

And a comprehensive recap of recent events via Deutsche Bank:

We don’t often begin the EMR with the weather but today’s headlines will likely be filled with updates on what could be the largest storm in history to hit the mainland of the United States. Hurricane Sandy is forecasted to make landfall late Monday night and is already causing disruptions to several modes of transportation along the eastern seaboard. New York City’s subway, bus and train services have been shut, 5,000 flights have been cancelled ahead and Amtrak services in the Northeast Corridor north of New York have been stopped ahead of the hurricane’s arrival.

As for the market the NYSE will be fully closed today (and possibly tomorrow pending confirmation) after having earlier planned to only close its physical trading floor and allow electronic trading to continue. A rare occasion indeed as it would be the first weather-related closure of the stock exchange since Hurricane Gloria hit in 1985. In other markets, the CME announced that its floor trading on the NYMEX oil market will be suspended today but electronic trade at all of CME will open at their regularly scheduled time. The Securities Industry and Financial Markets Association (Sifma) has called for fixed income securities trading to end mid-day today.

Hurricane Sandy aside we have an eventful week in the US with the final payrolls and unemployment report before next Tuesday’s election being the main data to watch. Personal Income/Spending today, Consumer Confidence tomorrow, Chicago PMI on Wednesday and the ISM on Thursday are also key releases this week. In terms of the earnings season, we have 114 of the S&P500 companies lined up this week with Ford, Pfizer (Tues), Visa, Mastercard (Wed) Exxon (Thurs) and Chevron (Fri) being the more notable firms to report.

In Europe, Germany’s employment data and Eurozone confidence surveys are scheduled for Tuesday. This will be followed by Euro-wide CPI and unemployment data on Wednesday, together with the ECB’s latest bank lending survey on the same day. Spain is due to redeem EUR20.3bn of bonds in the first half of the week. Earnings season will also pick up pace in Europe this week as 66 Stoxx600 companies are expected to report. UBS, Bayer, BP, Barclays, BBVA, Royal Dutch Shell, and RBS to name a few are the key ones.

Asian markets are trading mixed overnight, led by losses on the Shanghai Composite (-0.36%) and Hang Seng (-0.33%). The property-heavy Hang Seng index is underperforming following the Hong Kong Government’s announcement of a new 15% stamp duty for non-local buyers of real estate, in addition to new taxes on homes resold within three years of purchase. In China, official industrial profits data for September were released on the weekend which showed the first monthly increase in profits in five months (+7.8%yoy), although year-to-date profits remain down 1.8%yoy, led by the poor performance of metal smelting firms (-68%yoy). The Nikkei is outperforming (+0.03%) despite weaker than expected retail trade numbers (-3.6% vs -1.5% expected), which is perhaps adding further weight to calls for the BoJ to expand asset purchases when it meets tomorrow. On that note, a Bloomberg survey indicated that all but one of 27 economists surveyed expect the BoJ to ease further at tomorrow’s meeting. Japanese retail sales and IP as well as Chinese PMIs are the key Asian data this week. Away from equities, credit markets are generally softer overnight with the Asian and Australian IG indices 4bp and 1bp wider, respectively.

It was a relatively quiet weekend in terms of news with developments in Greece the main headlines of note. According to Der Spiegel, the troika are proposing a restructuring of Greek debt in addition to giving Greece two more years to reach fiscal targets. German FM Schauble said over the weekend that he is against further Greek debt haircuts but a Greek debt buyback is “something one could consider more seriously” (Ekathimerini). The same newspaper is reporting that the Greek government faced a Sunday deadline to reach full agreement on the EU13.5bn in austerity measures in order to get its next bailout tranche payment of EU31.5bn. The Euro Working Group (EWG) of eurozone finance ministry officials will convene again on Monday to discuss the conclusions Athens has come to, followed by a Wednesday video conference.

Away from Greece, Italy’s former PM Berlusconi said that the People of Liberty party is considering withdrawing support for Monti’s government claiming that Monti’s policies are driving Italy into a deeper recession. Party officials were downplaying Berlusconi’s comments, adding that the former PM did not have the support of party members to bring the government down (FT). Finally, with just over a week before the US Presidential election, the latest Reuters/Ipsos poll showed Obama enjoying a small edge over Romney (49% vs 46%), although it appears increasingly likely the result will boil down to results in a handful of key swing states.