Market Update 29 October 2012

· Mix headlines to start the week and we are inching closer to the US elections on 6^thNovember….

 

· S&P lowered its long-term rating on BNP Paribas to "A+" from "AA-" & also cut smaller players Banque Solfea and Cofidis. In addition it placed 10 others on negative outlook including Credit Agricole and Societe Generale.

 

· US GDP 3^rd Qtr +2.0% (exp 1.8%, prior 1.3%) was strong. Federal Spending +9.6% contributed +0.7% to the total number. Sceptics put this down to the impending election. Residential Homebuilding was the other standout sector +14.4%. The negative drought related fall in farm inventoried (subtracting -0.4% from GDP) but this will be temporary in effect. Also Business investment -1.3% with suggestions investment is being put off until after the fiscal cliff.

 

· USDMYR opened below 3.0500 today on the back of strong US GDP numbers as we continue to see the USDMYR range shift down to 3.0300-3.0800. Volumes could be low today as quite a number are still away on the long weekend.

 

· We’ve just heard that the NYSE will be closed tonight in light of the hurricane headed their way, we’ll have to wait and see if other exchanges are affected.

 

· Spanish Q3 unemployment prints 25.02%, almost right on expectations.

 

· ECB’s Nowotny said Spain does not at present need a bailout & should continue to refinance through the regular mkt. He also said it would be a good idea to give Greece more time to repay debt as the alternative would be too dangerous but noted that is a political decision.

· ECB’s Nowotony again...says he is sceptical funds from the ESM can be deployed in a timely fashion

· All this has equities struggling from the start. Only USGDP (below) printing well pulled them back up a little. Early safety bid seen in Bunds with techs buying the break of 140.75. The US Treasuries made and then closed on new weekly highs.

 

· Draghi backs Germany’s call for an EU “super-commisioner” that would have the power to veto national budgets. Both Draghi & Schaueble believe this would bring trust and stability back to the zone.

· Feds Lacker continued to beat the drum, dissenting is basis inflation fears:

1. FED STATEMENT IMPLIES COMMITMENT TO KEEP RATES EXCEPTIONALLY LOW AFTER “MARKED” REBOUND; NOT BE APPROPRIATE
2. FACTORS IMPEDING JOBS RECOVERY BEYOND MONETARY POLICY CONTROL
3. MORE STIMULUS COULD RAISE INFLATION IN WAY THAT DESTABILIZES INFLATION EXPECTATIONS

· Italy’s Berlusconi sentenced to 4 years prison (reduced to 12 months due to overcrowding) for tax fraud. 

· Some negative headlines circulating on China Life (worlds biggest insurer by mkt cap, US$82bln) reportings. They lost 2.2bln yuan last qtr (from 3.75bln profit a year ago). Clearly not a good story but when you consider major competitor Ping An is expected to have doubled its qtrly profit when reporting tomorrow it looks a lot more like poor management that a bearish China story.