Slowly some healthy scepticism about the strength of those worldwide green shoots is emerging in financial markets, but its nothing dramatic yet.

Tonight’s expected positive third-quarter growth figures for the US economy may change this evolving sentiment and return momentum to the bulls, but there’s a discernible level of second thoughts about the huge rally’s sustainability and the need for something more positive, especially in the US and Europe.

A unexpectedly large (3.6%) fall in US new home sales in September offset a solid 1% gain in durable goods orders. New home sales were expected to rise and the sharp fall pushed them down 7.8% from September, 2008’s low level. Durable goods orders were off more than 24% from the level of September 2008, a good indication of just how depressed demand is in the American economy for things such as trains, boats, planes, fridges and other longer-lasting goods.

The poor news on new homes sales jolted the US Senate into agreeing to extend the $US8000 ($A8723) new home buyers grant (it’s very generous, being limited to anyone who hasn’t owned a house in the past three years, unlike completely new home owners as in Australia). But will be expanded to higher income earners and to some people who already own a home.

It will be extended to April, the $US8000 grant will stay and people who have owned a house in the past five years will get a smaller grant of $US6500. But the Senate has to agree to bring on a vote, and there’s no sign of that. The grant ends on November 30.

So much for the all the fine talk in Congress from Republicans and some Democrats about excessive government spending, debts and deficits: when confronted by political needs, the public purse is raided.

Norway became the first European economy to lift interest rates overnight with the country’s central bank boosting its key rate 0.25% to 1.25%.

It joined Israel in August and Australia, this month, in lifting rates. Australia goes again next Tuesday.

US market forecasts for third quarter growth are for an annual rate of growth of 3.2%, although Goldman Sachs, which has been bullish, has pulled its forecast back to 2.7%. So anything in that range will be OK, anything less would see the sceptical note about the recovery, anything more and the huge markets rally could return.

Wall Street fell for the third day in the past four trading days: the Standard & Poor’s 500 is now off more than 5% since its 2009 high on October 19. The Dow and Nasdaq are down more than 3%. The falls overnight were more than 1% for the Dow, almost 2% for the S&P and more than  2.5% for Nasdaq, which has run ahead with investors believing that technology stocks will drag the US economy out of a rut.

International markets had a bad day; Tokyo’s Nikkei ended 1.35%; the FTSE 100 in London fell 2.32%; the DAX in Germany index dropped 2.46%, and the CAC-40 in France closed down 2.14%. The Australian market shed about 1.4% Wednesday. The overnight futures market had us posed for an 80-point, or near 2%, fall at the opening.

Oil and other commodity prices fell: oil was off more than $US2 a barrel at a fraction over $US77 a barrel. That’s more than $US6 a barrel down on the recent highs. Gold, copper, wheat and other major commodities fell as the US dollar continued its recent strong rally. it’s up almost three cents against the euro.

The Aussie dollar fell to about 89.70 US cents this morning, off more than two US cents in the past couple of days and four cents from the most recent highs. Not even expectations of a rate rise next Tuesday could keep the currency above 90 US cents. The greedy market traders want a half a per cent rise, the consensus is for a 0.25% nice and steady boost to be announced at 2.30 pm by governor Glenn Stevens.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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