Markets Tepid Following Mixed Economic Data, Impending ECB Decision

Economic Data Reveals Widening Trade Gap, Rising Productivity   Key economic data released today included a substantial widening of the US trade deficit in October, as goods exports dropped across the board.  The trade gap reported a 17.8% increase to $42.6 billion, the biggest jump since March 2015.  A large portion of the widening was attributed to a considerable drop in soybean exports, which had been robust in previous months due to flooding in Argentina and Brazil.  Imports for the month totaled the highest level since August 2015, totaling $231.3 billion.  Looking at specific trading partners, the deficit widened with Mexico (+$6.2 billion), Japan (+$5.9 billion), and the EU (+$13.1 billion), and surprisingly narrowed with China (-$1.4 billion).

In a report released by the Labor Department, nonfarm productivity rose 3.1% in the third quarter, matching the increase from the previous quarter and remaining at the highest level since the second quarter of 2015.  Breaking down the figure, output climbed by 3.6% while hours worked advanced by 0.5%.  Other data released today included factory orders for October, which exceeded expectations – rising 2.7% for the month.  Orders for aircrafts, both civilian and defense, were the largest contributor to the headline figure, as core capital goods orders (nondefense excluding aircrafts) only managed a 0.2% increase in the month.  Stocks didn’t reach much to the data, with marginal gains of 0.10% – 0.40% for all three major US stock indices, while Treasury yields/swaps rates remained largely unchanged throughout the trading session.  The rally in crude oil prices resulting from last week’s OPEC agreement lost some steam today, with WTI and Brent crude each falling 2% to $50.70/barrel and $53.85/barrel, respectively.             

Global Markets Prepare for ECB Meeting
Volatility measures in European markets have reached back towards their highest levels since the Brexit vote, as investors eagerly await news from the European Central Bank (ECB) meeting scheduled for this Thursday.  The spotlight will be cast on ECB chief Mario Draghi, who is expected to outline his plan to extend quantitative easing past March 2017, the current date the program is scheduled to end.  While expectations point towards a minimum six-month extension, fears over a possible tapering of the bond-buying schedule have kept markets on edge.  The current policy has been in effect for nearly two years now, and any reduction in monthly purchases stands to significantly increase European bond yields and the value of the euro, which has traded slightly down today after reaching 3-week highs yesterday.