Good morning

Less than 24 hours after the Fed took steps commensurate with a rather hawkish view on the state of the economy, the GDP growth came out better than expected showing a growth of 3.5% in the third quarter, versus expectation for a 3.1% advance. The positive surprise served well to mute concerns that the US Central Bank might have been too bold in deciding to discontinue its asset purchasing programme and tweak its previously bearish assessment of the labour market conditions. Indeed, the US market consolidated its gains in the aftermath of this data release and European stocks reversed their course as optimism extended over the Atlantic. The positive response is highly encouraging given that notwithstanding the positive headline growth, the breakdown data confirmed that consumer spending has weakened somewhat. The consumer confidence, as well as the spending and income data due today will provide a more timely insight into the state of this sector which is highly critical for the US GDP.

The Asian markets found another boost in the unexpected easing announced by the Bank of Japan (BoJ). More specifically, the Asian Central Bank decided to increase its Japanese Government bond purchases by 30 trillion yen to 80 trillion yen per year while also boosting its ETFs and REITs buying programme. The surprising move offset the disappointing household spending data which pointed to an acceleration of the decline to 5.6% year-on-year from -4% a month earlier. In the aftermath, the Japanese index closed 4.8% higher.

The long awaited progress in the Russian-Ukrainian gas negotiations should also add to positive sentiment, as overnight it was announced that a breakthrough took place in this respect. Russia cut gas supplies to Ukraine some months ago, with little effect so far given the low consumption over the summer period; the situation would however become more problematic over the winter for which reason the positive outcome of the latest Brussels-mediated negotiations is encouraging. Apparently, the rebel-shattered country agreed to pay USD3.1 billion by the end of the year to settle part of the debt due to Gazprom (amounting to USD5.1 billion); this will require EU’s financial support as Ukraine is still far from achieving economic stability. Indeed, the data released yesterday showed that the GDP fell by as much as 5.1% in Q3.

On the downside, the European markets will be challenged by the larger than forecasted drop in September German retail sales (i.e. 3.2% month-on-month, versus expectations for a 1.5% decline) and the downward revisions in the August data. The negative surprise comes shortly after data showed yesterday that the German consumer prices shrank by more than expected; this increases chances of a disappointment in today’s Euro Area inflation data. What is more, the economic calendar for today includes a flurry of European data – inflation, unemployment rate, French consumer spending. Earnings releases will naturally be on the focus as well, as today we will be looking into the reports published by BNP, RBS, Banco Popular Espanol, Bank of Ireland, Anheuser-Busch InBev and others. BNP already disclosed its results which showed a 11% increase in profit following a 16% improvement in revenues relating to fixed-income trading and a fall in loans provisions. RBS net profit was as well above expectations coming out at GBP896 million, ahead of expectations for GBP582 million.

Have a nice day!

Ralcua