Financial markets remained weak despite Fed’s pledge to continue QE3. The FOMC meeting, while containing few surprises, delivered some positive comments regarding economic developments. At the RBNZ meeting, the new governor Graeme Wheeler also sounded more upbeat on the economic outlook. He believed that "market sentiment has improved from earlier in the year, suggesting the risks to the global outlook are more balanced". Unfortunately, sentiment was not helped much by these comments as disappointments from Eurozone PMI heightened concerns over the region’s economic outlook. In the commodity sector, crude oil prices continued to move lower with both crude and gasoline stockpiles rising last week.

As expected, the October FOMC meeting contained few surprises. Policymakers decided to keep the fed fund rates and the QE3 program unchanged. Yet, the committee upgraded its assessment of household spending to "has advanced a bit more quickly" in October from "continued to advance" in its September statement. The Fed remained concerned that "economic growth might not be strong enough to generate sustained improvement in labor market conditions" and "strains in global financial markets" would continue to pose "significant downside" risks to the outlook. Therefore, it would continue with the QE3 program. As Operation Twist would be complete by the end of the year, we expect the Fed to expand the size of asset purchases by US$45B in December so as to maintain a constant pace of buying. Richmond Fed President Lacker dissented again at this meeting. Yet, it appeared he has softened its view against stimulus. The October statement revealed that Lacker "disagreed with the description of the time period" over which policy is likely to remain accommodative, compared with the September language that he "preferred to omit the description of the time period" entirely.

The RBNZ left the OCR unchanged at 2.5%. Governor Wheeler sounded more upbeat on the economic outlook. He believed that "market sentiment has improved from earlier in the year, suggesting the risks to the global outlook are more balanced". The central bank also acknowledged improvement in the housing market with housing market activity "increasing as expected" while "repairs and reconstruction in Canterbury are boosting the construction sector". The central bank cautioned also that "fiscal consolidation is constraining demand growth, and the high New Zealand dollar is undermining export earnings and encouraging substitution toward imported goods and services".

On the dataflow, Eurozone’s manufacturing PMI fell to 53.5 in October from 46.1 a month ago while Germany’s manufacturing PMI dropped to 45.7 from 47.4 in September. Both readings were weaker than market expectations. Meanwhile, Germany’s IFO confidence index also showed disappointments in difference areas. In October, the business climate index slipped -1.4 point to 100, the current assessment index fell to 107.3 from 110.3 while the expectations index stayed unchanged at 93.2, compared with market forecast of 93.7.

Concerning oil inventory, the DOE/EIA reported that total crude oil and petroleum products stocks rose +3.97 mmb to 1098.37 mmb in the week ended October 19. Crude stockpile increased +5.90 mmb to 375.13 mmb as stockpiles rose in 3 out of 5 PADDs. Cushing stock dropped -0.04 mmb to 44.07 mmb. Utilization rate was down -0.2% to 87.2%.

Gasoline inventory added +1.44 mmb to 198.57 mmb as demand dropped -2.70% to 8.49M bpd. Production slipped -0.63% to 8.99M bpd while imports slipped -0.75% to 0.53M bpd. Distillate inventory slid -0.65 mmb to 118.02 mmb as demand plunged -9.10% to 3.53M bpd. Imports slipped -30.59% to 0.06M bpd while production fell -2.27% to 4.38M bpd during the week.

Oil and Gold Reports contributed by Oil N' Gold