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Market Research8.pdf

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07 November 2013

Tokyo’s average office vacancy rate dipped in October
 Tokyo’s average office vacancy rate dipped by 0.3 points to 7.6% in October compared
with 7.9% gain in the previous month, the lowest level since August 2009

New Zealand’s house prices continued to accelerate
 New Zealand’s QV house prices climbed 8.9%yoy in October from previous 8.4%yoy rise
in September.

Thailand’s consumer confidence fell for the 7th consecutive month
 Thailand’s consumer confidence fell for the 7th consecutive month to 76.6, the lowest level
since February 2012 as political unrest hit sentiment.

What to Watch Today
US: GDP, Initial Claims, Fedspeak
 We project 3Q real GDP growth at 2.0% (QoQ annualized). Our third quarter forecast
assumes a final sales contribution of 1.7 pp, and a 0.3 percentage point contribution from
faster inventory building. Monthly retail sales and PCE data point to consumer spending
growth at a subdued 1.6%, with particular sluggishness centered in services spending.
Business fixed investment is expected at 4.7% (identical to last quarter), while the
narrowing in the monthly real trade deficit points to a 0.3 pp net export contribution.
Federal government consumption and investment is projected to decline sharply due to the
sequester (-7.1%). Elsewhere, we expect initial jobless claims rose 5K to 345K; the market
is looking for 335K.
 New York Fed President Dudley (voter, dove) will speak at an economic policy forum at
1:30pm; Governor Stein (voter, dove) speaks on “The Fire-Sales Program and Securities
Financing Transactions” at 1:50pm.
 The Fed will be in the market buying about $1.5bn 20-30y Treasuries, a reduction in
supply worth approximately $3.1bn in 10y equivalents.
 While we think the stronger ISM readings should keep the USD generally supported, in the
absence of new signs of strength, we think the recent USD surge could lose some
momentum. Given the speed of some of the recent FX moves, and with 10y Treasury
yields almost 20bp above their lows ahead of last week’s FOMC meeting, our expectation
for a soft payrolls print on Friday could see some near-term retracement in the USD trend.

Euro Area: ECB Rate Decision, German & Spanish IP
 We do not expect any policy change at this stage from the ECB but the tone of the press
conference should be dovish. Indeed, inflation has been surprisingly weak, money and
credit numbers remain in negative territory, the positive momentum observed in the
economic data may be running out of steam, while the relative strength of the single
currency could impede the euro area recovery. As a result, President Draghi may want to
leave the door open to the possibility of policy actions at the December meeting (when
they will revise their inflation forecasts for 2014 and produce a new forecast for 2015). The
positive Q3 Bank Lending Survey will likely be highlighted by President Draghi during the
press conference. Questions related to the AQR will also be of interest during the press
 Strong talk of negative deposit rates should rally the front-end and widen FRA-Eonia basis,
but another casual reference is unlikely to move the market. We recommend 5s30s
steepeners to benefit from a more dovish ECB, and short 5y5y EU HICPx inflation as the
risk of lingering low inflation is underpriced.
 We expect Spanish IP for September to improve slightly on the month to -1.0% from -2.0%
in August; indeed 3m3m growth momentum has improved since the start of the year.
Market expects German IP for September to stay flat on the month from +1.4% in August.
The Global Macro Pulse