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• Inflation data culls growth in the Aussie.
• US data is ‘green shoots’ but no Hibiscus.
• US earnings season provides cautious optimism.

There has been an economic vacuum for local data this week however the key piece came in today’s inflation figure. The markets waited anxiously until the release of third quarter CPI (2.8%), which was well within the 2-3% band that the RBA uses to guide interest rate decisions. The effect was that the local unit free-fell more than a cent over a two hour period and continued its decline into the evening as the prospect of a rate hold in November was confirmed as all but a sure thing. This places the balance of power of currency fluctuations in the hands of US equities and QE-speak until we get some local data to provide direction in the form of wages and terms of trade.

In the US, we’ve been indulging in a strong round of economic data and generally speaking the green shoots of economic recovery continued to emerge. Most notably, the Philadelphia Fed Manufacturing Survey (1.0), Existing Home Sales (10%) and Richmond Fed Manufacturing Index (5). Of great interest was the Consumer Confidence (50.2) figure which made a subtle recovery and provided for greater confidence about the consumer led growth prospects in the US. The Fed’s Beige Book however described a more cautious tone as it noted that there had been “modest” growth over the last month. The data out of the US reflects a slowly recovering economy and the training wheels will need to remain firmly attached by Ben Bernanke. The US central bank meets again on the 3rd of November and should there be no QE announcement, it leaves the US economy and the Aussie in a precarious position.

Equity markets continued their stellar revival this week with the S&P 500 putting on 1.68%. Locally, investors and politicians weighed into the ASX takeover debate however not even a 30%+ premium is likely to sway decision makers into relinquishing that key financial institution. More importantly for the Aussie has been third quarter earnings season in the US with companies there continuing to provide better than expected results. Industrials, Tech, Energy and Consumer stocks have largely performed well with names such as Boeing and Yahoo posting better than expected results.

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