Thursday Morning Cheat Sheet: 3 Stories Moving Markets



It’s Thursday, November 7, and the big news this morning is the U.S. gross domestic product report. More on that later, though. First, we turn to Asia, where major equity markets closed the day down pretty much across the board.

1. Roadblocks to growth in Asia

Trade, demographics, capital accounts and financial markets, and the environment: these are the four areas highlighted by Australian economist David Gruen (executive director of the Australian Treasury’s Macroeconomic Group) where Asian economies face the most challenges. As reported by Xinhua, a Chinese state-run news agency, Gruen outlined the issues at an economic forum in Australia called Asia’s Economic Challenges and Policy Choices.

Gruen pointed out that more than half of the world’s economic growth over the past decade has occurred in Asia, spread between both major and minor economies, and the region is expected to continue to claim as much growth in the near future. The challenge — perhaps best highlighted recently by the policy posturing of China’s government — is to ensure that growth is healthy and sustainable. China’s ruling party is gathering for a meeting to outline (and possibly adopt) new reform policies.

Major Asian equity markets closed down on Thursday. In Japan, the Nikkei fell 0.76 percent to 14,228.44, and the yen weakened to 98.6950 against the dollar. In Hong Kong, the Hang Seng fell 0.68 percent to 22,881.03, and in Shanghai, the SE Composite fell 0.48 percent to 2,129.40. In Australia, the ASX All Ordinaries fell 0.2 percent to 5,415.40.

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2. U.S. economy

Gross domestic product increased at an annul rate of 2.8 percent in the third quarter, according to an advance estimate released by the Bureau of Economic Analysis on Thursday. Third-quarter GDP primarily reflects positive contributions from personal consumption expenditures (consumer spending) and private inventory investment, with negative contributions from federal government spending. The acceleration in GDP growth from the second quarter, when GDP grew 2.5 percent, was also a factor of fewer imports.

Separately, the Department of Labor reported that initial claims for unemployment insurance fell 10,000 to a seasonally adjusted 340,000. The four-week moving average, though, continued to edge higher, climbing by 8,000 to 356,250. Average unemployment claims are about 20,000 below the year-ago level. No state reported an increase in claims of more than 1,000. Several states reported fewer layoffs in manufacturing. The government is due to release the Employment Situation report on Friday morning, which is expected to show that headline unemployment in the U.S. edged up to 7.3 percent in October.

U.S. stock futures advanced ahead of the opening bell on Thursday. At 8:30 a.m., Dow futures were up 0.47 percent, S&P 500 futures were up 0.34 percent, and Nasdaq futures were up 0.21 percent.



3. European monetary policy

The European Central Bank concluded a policy meeting today. The central bank reported that it would reduce the interest rate on the main refinancing operations of the Eurosystem by 25 basis points, to 0.25 percent, effective Wednesday. The interest on the marginal lending facility will be reduced by 25 basis points, to 0.75 percent, and the interest rate on the deposit facility will remain unchanged, at 0 percent.

“Real GDP in the euro area rose by 0.3%, quarter on quarter, in the second quarter of 2013, following six quarters of falling output,” said ECB President Mario Draghi at a press conference. “Looking ahead, output is expected to continue to recover at a slow pace, in particular owing to a gradual improvement in domestic demand supported by the accommodative monetary policy stance. Euro area economic activity should, in addition, benefit from a gradual strengthening of demand for exports.¬†Furthermore, the overall improvements in financial markets seen since last year appear to be gradually working their way through to the real economy, as should the progress made in fiscal consolidation. In addition, real incomes have benefited recently from generally lower energy price inflation. This being said, unemployment in the euro area remains high, and the necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity.”

Meanwhile, as expected, the Bank of England voted on Thursday to maintain the official Bank Rate paid on commercial reserves at 0.5 percent and to leave its 375 billion pound ($602.8 billion) stock of asset purchases unchanged. The committee’s next round of economic projections will be released with the inflation report on Wednesday.

European equities were mixed in midday trading. In the United Kingdom, the FTSE 100 edged up 0.44 percent; in Germany, the DAX climbed 0.39 percent; in France, the CAC 40 fell 0.08 percent; and the Euronext 100 index was off 0.12 percent. The euro weakened slightly, to 0.7402 against the dollar.

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