- US financial markets are closed today as hurricane Sandy hits the Atlantic coast.
- Bank of Japan is expected to deliver a new round of easing this morning.
- Focus today will be on Sandy’s damage and European data.
Hurricane Sandy made landfall at the US yesterday evening causing destruction along the east coast with severe flooding and millions of people left without power. US markets are closed today but are expected to open again tomorrow and several companies have decided to delay their earnings releases. Government forecasters have warned about gale-force wind and flooding on much of the east coast and heavy rain and snowfall further into the country.
Sandy has so far triggered evacuation orders for hundreds of thousands of residents who live near the coast, 12,000 cancelled airline flights, mass closure of schools and public transit systems. There is no doubt that disruptions and rebuilding will affect US businesses but how large the net impact will be is too early to say.
With US equity markets closed yesterday and today, liquidity is rather thin. The S&P 500 index future has traded slightly lower overnight. This morning, most Asian equity markets are up on expectations that Bank of Japan will add further stimulus this morning as a reaction to a weak economy (see Bank of Japan preview, 26 October).
Indeed, Japanese industrial production data released overnight showed a 4.1% m/m drop in September on the back of a 1.6% m/m decline in August and according to production plans, the outlook remains relatively subdued. The data confirm that Japan has entered a recession and we estimate that GDP contracted 2.4% q/q AR in Q3 and will contract by more than 1.0% q/q AR in Q4.
The US bond market closed early yesterday and price action was limited. Ten-year Treasury yields dropped 3bp and two-year yields were virtually flat.
In the FX markets EUR/USD continues to trade around 1.29. JPY has strengthened slightly overnight against USD as markets have already priced in further easing from Bank of Japan. The Scandinavian currencies have been broadly stable towards USD overnight.
In commodity markets, gasoline prices rose for a third day in a row as US refineries closed down operations in preparation for Sandy’s landfall.
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