US output up…

The US output rose by a solid 0,7% m/m in October beating market expectations of a 0,4% increase and what is more important capacity utilization rose by 0,4pp to 77,8. This positive surprise comes after few very sluggish readings (and the annual dynamics remains below 4%) but fits a recent string of positive surprises from the US economy. The data released in the last couple of weeks suggest the US economy have escaped a wrath of the crisis thus far. We have another three important US data releases today: housing starts, weekly claims and the Philly Fed index. We think that the last one is definitely the most important even if in normal circumstances it does not attract that much of attention. However we saw a strong rebound in the Philly Fed last month (from -17,5 to +8,7) and we saw the NY Fed returning above the 0 mark this month as well. Should the last rise in the Philly Fed be “validated” by a similar (or better) reading today, one could start hoping about the US economy entering a recovery phase again.

…but the market down on Fitch

We have already pointed at a much better performance of US equities compared to those in Europe which means that investors see the difference, not only because of the debt crisis by also a relative stance of the economy. However, this is still not enough for Wall Street bulls to charge forward as each macroeconomic release is countered by a fear factor from Europe. Yesterday it was the Fitch agency saying that a crisis in Europe is a risk for US banks.

Consequently, the S&P500 futs. are still in the triangle and one needs to notice that it is a very late stage of this formation (in other words usually we would already have a breakthrough and some directional movement). Furthermore the limits are respected quite precisely which means that there are more on the market tracking this formation. It means that while the breakthrough takes place (and it should take place really soon), one can expect a strong movement. The question is what will prevail: good data from US or European fears?

Przemysław Kwiecień PhD, Chief Economist

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