The big news overnight has been the unexpected downgrade of New Zealand's credit rating by Fitch, stripping the country of its AAA standard and instating an AA+ rating with outlook stable. Fitch cited high levels of external debt as the key concern which prompted the move, but given the market's preoccupation with Europe in recent weeks and minimal commentary even suggesting this scenario, the move has come as quite a shock. Risk appetite has understandably been subdued across the region, with major equity indices mostly lower. The Nikkei is roughly flat on the day, whilst the Hang Seng is -1.7%, and Shanghai Composite -0.2%.
As expected yesterday, Germany's parliament successfully voted through changes to the EFSF; with a large majority backing the 21 July proposals (523 in favour, 85 against, 3 abstentions). This should not have come as a surprise considering that the German opposition had already revealed their commitment to supporting Chancellor Merkel's coalition in the vote; but in an environment where progress and developments in the Greek saga have been slow, this came as a welcome step in the right direction. The latest confidence figures from the Eurozone revealed a slump across the board, and added to concerns that the region is on the brink of a recession. Consumer confidence unexpectedly dipped to -19.1 (-18.9 expected, -18.9 prior), economic confidence dropped to 95.0 (96.0 expected, 98.3 prior), industrial confidence fell to -5.9 (-5.0 expected, -2.9 prior), and services confidence came out at a disappointing 0.0 (2.0 expected, 3.7 prior).
In the afternoon session, US Q2 GDP was revised higher by a greater margin than the market had been expecting; the third and final reading came out at 1.3% QoQ annualized, compared to estimates looking for 1.2% (up from 1.0% last). The gains were largely due to increased structures investment and an upward boost from net trade, but looking ahead, the key to Q3 growth prospects lies in how well consumer spending can rebound from a poor Q2. In other data, jobless claims were slightly better than expected; with initial claims dropping to 391k from 423k last week, and continuing claims remaining broadly stable at 3729k.
Looking ahead at this morning's data calendar, Eurozone CPI for September is expected to remain unchanged at 2.5% YoY, whilst Switzerland's KoF leading indicator is expected to dip sharply to 1.30 from 1.61 last month. The afternoon session will be rounded off by Canadian GDP for July, US PCE readings, Chicago PMI and the U. Michigan final consumer confidence figure for September.