3 Numbers to Watch: US Industrial Prod & TIC, EZ Current Acct
This Friday the calendar is short on big-ticket items, but given the end of the week, the recent volatility, Europe’s continuing uncertainties, next week’s US holidays and ensuing position adjustments, I have a feeling we’re in for an interesting trading day. I’m not expecting much from the numbers, but it is the market’s interpretation that counts. Thus, I believe the market will over-interpret today’s numbers and we will see some good trading opportunities. Also watch out for President Obama, who meets with Congressional leaders (fiscal cliff).
Eurozone Sep Current Account Balance (09:00 GMT) is expected to show a surplus of EUR 9bn (prev. EUR 8.8bn). While the headline figure will probably not surprise by much, the geographical breakdown might provide some interesting tidbits.
I would be on the lookout for signs that the creditor countries’ (Finland, Austria, Netherlands and Germany) exports to outside the Eurozone have been suffering. While export deterioration could at a first glance be easily interpreted as negative for the euro, bad numbers could actually push the politicians to get their act together – and that would be a medium-term positive for the euro.
The EURUSD has rallied for the past couple of days, and the test of the 1.28-resistance level is currently under way. Either the euro's downtrend from mid-October resumes, or we are back to directionless markets – this data release could very well be the excuse for the markets to make the call. The trade balance figures are released at 10:00 GMT, but any effects will already have been felt by then.
US Sep Treasury International Capital data (14:00 GMT), or the difference between the net purchases of long-term securities by US citizens and foreign investors, is expected to come in around USD 75bn (prev. USD 90.0bn). The higher the TIC number, the more there is demand for the USD. The series is volatile and any reasonable change should normally have little impact. The recent search for yield in zero-interest rate environment has pushed the yields of corporate bonds very low and even the lower credit quality papers have been in high demand. This has changed during the current market correction, and even though the TIC numbers are now old, they could provide ammunition for bears and bulls alike. For the risk markets, the worst scenario would be decreased foreign interest in US corporate paper.
US Oct Industrial Production (14:15 GMT) is expected to be +0.2% (prev. +0.4%), with capacity utilization to remain unchanged at 78.3%. Instead of showing the usual progression of the revised indexed production, I would like to draw your attention to the initially reported number (often subject to revisions) and the consensus expectation at the time.
What interests us is not the revised history, but the actual reported number vs. the expectations at the time. With the recent range of the monthly IP changes, the chance of a negative surprise is definitely there, but as markets have already sold off, any surprise could translate into policy expectations and thus turn out to be a market positive after all.
I am paying a lot of attention on the price response today, as I believe it will set the tone for the next 5-10 days. Should the stock market "like" the number (either because it was bad = more easing or it was good = better earnings), the sentiment would improve and carry the markets for a week or so. In addition to the EURUSD level mentioned previously, the S&P 500’s recent correction has reached the historical ‘average’ size – and there is a triple-witching expiration in US.