ANZ’s morning brief – Lull in storm or Recovery on Way?

A LULL IN THE STORM, OR RECOVERY ON THE WAY? There was a swathe of data overnight from both the US and Europe with most of it either surprising on the upside, or in line with market expectations. However, most of the indicators are still at very low levels begging the question whether it is a lull in the storm, or the base. In Europe there was the German Zew survey of investor confidence with the key expectations series a little strong than expected while the current situation series softened a touch. Eurozone trade data for Aug showed export values rose 3.7% m/m, while imports rose by 2.1%. This led the seasonally adjusted trade surplus to reach €9.9bn in August, up from July’s €7.2bn. It seems European exporters are benefiting from better demand from Asia and the US rather than interregional trade. Eurozone inflation was unchanged at 2.6% in Sep rather than rising to 2.7% as the flash estimate had suggested – core inflation remained a benign 1.5% y/y. In the US most of the companies (including Johnson & Johnson, Goldman Sachs, State Street and Coca Cola) reporting Q3 earnings beat market expectations. US CPI for September jumped 0.6% m/m, but this was almost entirely due to a 7% m/m surge in petrol prices. Both headline and core inflation are now in line with the Fed’s 2% target leaving it free to focus on the labour market. US manufacturing output also rebounded 0.2% m/m, but it only reversed a small part of the August fall.

ELSEWHERE THE DAIRY AUCTION delivered a very strong result, especially WMP prices rising 9.2%. WMP typically makes up just over 60% of the weighing used to determine the farmgate milk price. Spot prices last night point toward a milk price of $5.75 per kg MS. At this stage we hold our forecast of $5.50 per kg MS. The strong prices for WMP occurred for contracts Dec-Feb indicating Chinese buying due to lower tariffs for the first 125,000 mt imported at the start of a year.