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Daily Agenda: No Economy Is Immune from Geopolitical Risk

Housing prices fall further in China, U.K. GDP slows down and German consumer sentiment is a positive surprise.

While corporate earnings have buoyed market sentiment during the past few trading sessions, the news yesterday of a confirmed Ebola case in New York, coming on the heels of an attack in Canadian capital Ottawa, provides an unwelcome reminder that no place is immune from geopolitical risk factors. The dilemma for investors now is to decide whether to position defensively due to these macro fears or focus solely on the corporate and economic data at hand. In a report issued yesterday, David Rosenberg, chief economist at Gluskin Sheff in Toronto, noted that the U.S. Treasuries market indicated that bond investors at least have adapted a cautious stance. “The fact that bonds could not rally yesterday with the negative reversal in equities and the very benign U.S. consumer price index data looked to be a situation where all the ‘good news’ for Treasuries is in the price,” he wrote. “An asset that no longer responds bullishly to bullish news is not bullish.”

Property prices fall in China. According to data released today from China’s National Bureau of Statistics, during September new home prices contracted in 69 out of the 70 cities surveyed, making that the fifth straight month of home price declines. In a joint September 30 announcement, the People’s Bank of China and the China Banking Regulatory Commission relaxed regulations to allow individual borrowers to secure mortgages on secondary homes in a move intended to help the housing market experience a soft landing as prices deflate.

U.S. home sales to taper off. The pace of sales for newly built homes in the U.S. is expected to moderate for September after surging to an annualized 504,000 in August. The indicator, which tends to be volatile, has been heavily impacted by low year-to-date inventories.

Growth moderates in the U.K. Preliminary U.K. third-quarter gross domestic product data released today suggests the country is experiencing a slowdown in overall activity, as headline growth registered at 0.7 percent versus 0.9 percent in the prior quarter. While this level was in line with consensus forecasts, it provides more evidence that problems on the Continent are impacting the U.K.’s economy, a scenario discussed in the most recent Monetary Policy Committee release from the Bank of England.

Ford earnings disappoint. Ford Motor Co. reported a 34 percent drop in third-quarter net income this morning. Costs related to the new F-150 pickup truck were identified as a major negative factor impacting results.

German consumers more confident than thought. GfK German consumer sentiment data for October registered at 8.4, stronger than the forecast 8.3 as shoppers in the European Union’s biggest economy shrug off geopolitical threats. Despite recent reductions in official GDP targets for 2014 and 2015, unemployment remains near record lows in the nation while incomes continue to rise.

EU summit ends today, likely without budget. The meeting of the heads of EU governments ends today in Brussels with a subsequent announcement. No significant progress is anticipated in the debate over 2015 budgets.

Ruble hits new lows. As the impact of Western sanctions and declining oil prices batter the Russian economy, the ruble reached a record low versus the euro-U.S. dollar basket today. With the currency tumbling despite $15 billion in intervention by the Central Bank of Russia in recent weeks, some analysts predict that major ratings agencies will lower the nation’s status to noninvestment grade.

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