Overnight the usual suspects from the Fed were on the wires, with Dallas Fed president Richard Fisher stating that ‘the fiscal shenanigans’ has undermined the case for tapering; Kansas City Fed President Esther George said the Fed has ‘enough data to assess the economy’s strength and should taper even amid fiscal uncertainty’.
With the central bank convening next week (October 29 and 30), macro watchers will be hanging on every word in the press about the possible direction the Fed will take come Wednesday.
However, it is very hard to see any change here: ‘data dependency’ is what led Ben Bernanke to hold the line in September - the data hasn’t changed inside a month. In fact, the data the Fed follows most closely in the unemployment rate and non-farm payrolls hasn’t been released due to the shutdown. Manufacturing indices over the month have been mixed and confidence was strained; the likelihood of a change is remote.
The November meeting will also be interesting as October data hasn’t be collected. The non-farm payrolls data is normally collected on or around the fourteenth of every month (right in the middle of the shutdown), so it is possible that at the November meeting no new data will have been given and others rise to hold the line. This is all risk-asset supportive and why the S&P will continue to be pumped up by monetary stimulus.
China and the RBA
However, today is all about the Asian announcements; BoJ Governor Kuroda and RBA Governor Steven are making statements today, but the most important announcements today come from China.
The world’s second largest economy will release its much-anticipated GDP figures at 13:00 AEDT; the speculation here has been massive and estimates range from economists mirror this speculation; they are predicting between 7.4% to 8.2% and a medium estimate of 7.8%.
It has been varied year for China. The newly installed government has be cracking down on speculative lending, fraudulent invoicing and dubious trading. The long-term effects on the Chinese economy will be positive and will see a much more stable China. The policies will remove the threat of a possible hard landing. The issue is that in the short term it will affect current data and the GDP figure today will illustrate the short-term effects of these policy changes.
However, the GDP is only one of five pieces from China today; investors will also be watching fixed asset investment, industrial production, the National Bureau of Statistics press conference and retail sales.
It hard to judge which one(s) the market will react to; however, going on previous months, fixed asset investment and industrial production will be key. We have just seen the trade balance data showing exports slowed, but imports are surging ahead. A possible conclusion that could be drawn here is that fixed asset investment could increase and industrial production may fall, which would probably be market negative as the central government is looking to crack down on fixed asset investment and would reign in stimulus.
However, if the GDP figure is better than expected it will override all of this and the whole region will shift higher.
What will be just as interesting from the Australian market perspective is the speech from Glen Stevens at 12:00 AEDT. The statement and minutes have been very neutral over the last two months, and rumours are growing that his speech today will signal the end of easing. His tact will change on the housing market and he will allude to the fact leading indicators, business confidence, consumer confidence and spending habits are improving.
The neutral move has started to be priced into the AUD, however if his statement confirms the rumours, expectations will be for AUD/USD to push further into the $0.96 handle having crossed the 200-day moving average overnight. It will be the pair to watch today with China following up an hour after his speech. $0.97 is not out of the picture if both of these events align.
Ahead of the Australian open
Ahead of the open we are calling the ASX 200 up 31 points to 5314 (+0.58%). That is 0.3 of a point short of the year-to-date high. Yesterday I talked about the fact that the market will test this level inside the next week (so today) from here the market is chasing 5421, which is the 62% retracement of the 2007 high to the 2009 low. The opening call will be very dependent on the data at 12:00 and 13:00 AEDT, particularly the China data.
BHP’s ADR is suggesting the stock could jump 12 cents to $35.92 (+0.34%), as iron ore registers its seventh positive session, but will be muted in early trade heading into the China data drop.
Production reports continue today with Santos on the wires; expectations are for 52 to 55 million barrels of oil equivalent, which was the July forecast. Any update regarding the Gladstone LNG project will also be met will interest.