US economic output is widely expected to post substantially slower growth in the government’s preliminary estimate of third-quarter GDP that’s scheduled for release this Thursday (Oct. 29). Exactly how much deceleration we’ll see vs. Q2’s strong 3.9% rise (real seasonally adjusted annual rate) is a matter of some debate. Indeed, the projections vary from tepid expectations that border on stall-speed assumptions up to a moderate pace that’s still worrisome but strong enough to fend off the view that a new recession is near.
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● US new home sales fall in Sep, close to 1-yr low | Reuters
● Dallas Fed Index: mfg activity revives as gen’l index stays negative | 24/7 Wall St
● US warship sails through disputed waters in South China Sea | CNN
● Fed debates at center of policy focus this week | Bloomberg
● White House & Congress reach budget deal | WaPo

US stocks reclaimed the top spot in last week’s performance race for the major assets classes, based on a set of proxy ETFs. The Vanguard Total Stock Market ETF (VTI) gained 1.7% for the five trading days through Oct. 23, the fourth straight weekly rise—the longest winning streak in a year. Otherwise, the week just passed was mixed for the major asset classes, with broadly defined commodities—iPath Bloomberg Commodity (DJP)—leading the losers with a 2.7% loss—the biggest weekly slide since August.
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● US Manufacturing PMI rises to 5-month high in Oct | MarketWatch
● Ifo business climate data for Germany edges up in Oct | Ifo
● China cuts policy rate–a warning sign for global economy? | The Guardian
● Japan still struggling after years of monetary stimulus | NY Times
● Russia’s operations near US undersea cables looks suspicious | Reuters
● ECB’s Draghi looking for clues this week about stimulus plan | Bloomberg

● America’s Bank: The Epic Struggle to Create the Federal Reserve
By Roger Lowenstein
Essay by author via The Wall Street Journal
Antipathy to the central bank is a uniquely American tradition. No federal agency, except the Internal Revenue Service, is held in lower regard than the Federal Reserve, according to public opinion surveys. The left accuses the Fed of being too cozy with banks; the right says it is planting the seeds of a massive inflation.
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Has the recent slowdown in US manufacturing run its course? That’s the implication in today’s flash estimate of Markit’s purchasing managers’ index (PMI), which increased by to 54.0 in October from 53.1 in the previous month—a five-month high that puts more distance between current activity and the neutral 50.0 mark. It’s still too early to break out the champagne or assume that the US economy is set to roar in the months ahead. But today’s release suggests that the manufacturing sector in the world’s biggest economy will continue to post moderate growth after a bout of deceleration.
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After a rough two months that witnessed a sharp decline in equity prices in the US, the stock market has recovered most of the losses since China announced a surprise currency devaluation on Aug. 11—an event that triggered a selling wave of risky assets around the world. It’s debatable if the worst is over. But from the vantage of the US equities, the outlook is considerably less threatening compared with the dark days from late-August through September’s close. The question is whether Mr. Market’s spiritual revival of late is a reliable indication of better days ahead vs. noise that’s distracting us from recognizing that a deteriorating trend is still underway?
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● Conference Board’s US Leading Economic Index dips in September | WSJ
● US jobless claims inch higher but remain near multi-decade low | MarketWatch
● US growth below average in September | Chicago Fed
● US existing home sales rise in Sep, near 8-year high | Bloomberg
● US consumer expectations weaken in Bloomberg survey | Bloomberg
● ECB signals more stimulus for Eurozone in December | The Economist
● Eurozone Composite PMI ticks up to 2-mo high in Oct | Markit

US economic growth was softer than expected in September, according to this morning’s update of the Chicago Fed National Activity Index’s three-month moving average (CFNAI-MA3). Last month’s reading dipped to -0.09, the lowest since this past May. Despite the latest slide, this benchmark of economic activity remains well above its -0.70 tipping point that marks the start of recessions, according to Chicago Fed guidelines. But while the US avoided a downturn last month, it’s clear that growth is still sluggish and will probably remain so for the near term. Indeed, the Atlanta Fed’s current nowcast (as of Oct. 20) for third-quarter GDP is a weak 0.9% (seasonally adjusted annualized rate), well below Q2’s strong 3.9% rise.
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Consumer discretionary stocks have strengthened their lead among the major US equity sectors this month, based on trailing one-year total return data for a set of ETF proxies. After bumping healthcare shares from the top spot recently, the Consumer Discretionary SPDR ETF (XLY) has widened its performance edge over the rest of the field in October.
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