It has not been a great 24 hours for data flow (although it has been reasonable for those of us who are short). US Q3 GDP was reduced from the advance number of 2.5% to a preliminary number of 2%. The change is actually mostly down to a poorer inventory number, which may bode well for Q4 growth. Final demand was pretty much unchanged. This change highlights the fact that reported GDP, while important, is not the best indicator of what is going on the the economy on a quarter-by-quarter basis. It is important to look into its components. The other strikingly bad bit of data was the HSBC China PMI, which declined from 51 to 48. New export orders remained above 50, so perhaps the decline is more due to domestic tightening than external conditions — or perhaps you can’t read too much into the monthly vacillations of the PMI components. 

The Fed is imposing some pretty tough stress tests on US banks this year, as part of its annual Comprehensive Capital Analysis and Review (part of the post-crisis macroprudential regime). Unlike last year, the stress-test scenarios have been published in advance, and include a severe Eurozone recession and US unemployment at 13%. Stress tests are becoming a permanent part of the regulatory landscape, and that is probably a good thing. They combine transparency with comprehensibility — there is lots of information but it is also boiled down into a pass-or-fail judgement. It struck me that they may provide a rationale for true value investors, who often avoid banks because they cannot analyse them, to look again at the sector. The US may be getting to a point where it is actually possible to make an informed assessment of the value of a bank.

The FOMC minutes were released yesterday and did not contain any surprises. “A few” participants said that the outlook may warrant more easing, but only Charles Evans voted for it at this meeting. There were no hawkish dissents. I am finding it hard to read how far the Fed is from additional easing and need to look into this. 


Eurozone manufacturing flash PMI 46.4 d.e. Services 47.8 b.e.
Eurozone industrial new orders -6.4% d.e. Sep.