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ECB rate cut takes the market by surprise, Twitter IPO flies, USA unemployment falls, GDP rises, yet the main USA markets fall…

Nov 8 • Morning Roll Call • 1369 Views • No Comments

twitter-birdIt’s not often we enjoy (or endure) trading sessions so high on drama from all angles, but Thursday was one such day. And for the most part the news was all positive. We had falling unemployment claims in the USA (falling by circa 9K to 336K) whilst USA GDP rose further than expected, up by 2.8% from economists’ predictions of 2%. The USA Conference Board index rose by 0.7%.

Despite these positive indications the main markets in the USA sold off heavily. Now the reasons could be many and various; there may have been a transfer out of certain stocks into the incredibly successful flotation of Twitter, or investors witnessing the many positive news high impact news items from the USA formed the conclusion that ‘the taper’ is back on. Or analysts may have combed through the data on GDP to realise that only inventory growth was the real driver of the data, as retail sales and consumer confidence is showing signs of fatigue. Or perhaps analysts have one eye on the NFP jobs report tomorrow and to quote Time magazine’s headline “it’s going to be a real bummer”. The prediction is for only 121K jobs to have been added in October, naturally the excuse of the temporary govt. shutdown will be trotted out once again as the excuse, but it doesn’t really wash, or dovetail with other key data.

It’s difficult to link the stunning news from Europe and the ECB into the equation of falling markets, but there was little doubt that the reduction of the base interest rate by 0.25%, from 0.5%, took many market investors and speculators by surprise. However, there were some institutions who called it right yesterday and from a swing/trend trading perspective no traders should have been long the euro when the news broke of the base rate reduction. Take a bow the analysts and commentators at: Bank of America, Royal Bank of Scotland Group and UBS who all called it right.

 

Twitter gets off to a flyer

Twitter not only defied the bears in Thursday’s trading session but also the cynics; how a company that allows their (short) text message generator to share a single text message with millions, and relies on pushing advertisements to customers, who don’t really want what’s being sold, is now worth $31 billion is a mystery. Back in Feb. 2013 analysts were suggesting a valuation of $11 billion was excessive and yet here we are, it’s worth $31 billion. As the famous saying states; “the market can stay irrational longer than you can stay solvent”.

The stock began trading at $45.10, 73% above its initial public offering price of $26, shortly before 11 a.m. ET. Twitter continued to rise, climbing as high as $50.09. It closed the day up 73% at $44.90, with more 117 million shares exchanging hands on the first day of trading.

 

US Unemployment Insurance Weekly Claims Report

In the week ending November 2, the advance figure for seasonally adjusted initial claims was 336,000, a decrease of 9,000 from the previous week’s revised figure of 345,000. The 4-week moving average was 348,250, a decrease of 9,250 from the previous week’s revised average of 357,500. The advance seasonally adjusted insured unemployment rate was 2.2 percent for the week ending October 26, unchanged from the prior week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending October 26 was 2,868,000, an increase of 4,000 from the preceding weeks revised.

 

The Conference Board Leading Economic Index for the U.S. Increased in September

The Conference Board Leading Economic Index for the U.S. increased 0.7 percent in September to 97.1 (2004 = 100), following a 0.7 percent increase in August, and a 0.4 percent increase in July. The September LEI suggests the economy was expanding modestly and possibly gaining momentum before the government shutdown.

 

US Gross Domestic Product: third quarter 2013 – advance estimate

Real gross domestic product, the output of goods and services produced by labor and property located in the United States, increased at an annual rate of 2.8 percent in the third quarter of 2013 (that is, from the second quarter to the third quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.5 percent. The Bureau emphasized that the third-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency.

 

Market overview

The DJIA sell off saw the index drop below 15600, to close down 0.97%. The SPX closed down 1.32%, the NASDAQ sold off the most by 1.90%. Several European markets also suffered a ‘red’ day; STOXX down 0.44%, CAC down 0.14%, DAX up 0.44%, FTSE down 0.66%. The Athens exchange closed up 1.25% despite the general strike of yesterday, the troika visit appears to be going to plan.

NYMEX WTI oil closed down on the day by 0.63% at $94.20 per barrel, NYMEX natural gas closed up on the day 0.60%, COMEX gold closed down 0.71% at $1308.50 per ounce, COMEX silver down 0.50% at $21.66 per ounce.

Equity index futures are pointing to the main European and USA markets opening in negative territory. The DJIA is down 0.64%, the SPX down 1.16%, the NASDAQ down 1.67%. STOXX future is down 0.33%, DAX future up 0.51%, CAC future down 0.14%, and the UK FTSE future is down 0.73%.

 

Forex focus

The euro fell 0.7 percent to $1.3424 late in New York time after slipping as much as 1.6 percent, the biggest drop since December 2011. It touched $1.3296, the weakest level since Sept. 16th. The 17-nation shared currency slid 1.4 percent to 131.47 yen. Japan’s currency added 0.8 percent to 97.88 per dollar after dropping as much as 0.8 percent. The euro fell the most in two years versus the dollar after the European Central Bank unexpectedly cut its main refinancing rate to a record-low 0.25 percent to boost growth in the 17-member currency region.

The U.S. Dollar Index climbed 0.3 percent to 1,016.51 after touching 1,022.30, highest since Sept. 13th. It gained as much as 0.9 percent, the most since Aug. 1st.

The pound strengthened 0.7 percent to 83.48 pence per euro after appreciating to 83.01 pence, the strongest level since Jan. 17th, as the Bank of England kept its key interest rate and bond-buying target unchanged, matching the forecast by all analysts surveyed.

 

Bonds

Benchmark 10-year yields fell four basis points, or 0.04 percentage point, to 2.60 percent as of 5 PM New York time. The price of the 2.5 percent note due August 2023 added 3/8, or $3.75 per $1,000 face amount, to 99 5/32. The yield fell as much as five basis points, the most since Oct. 22. Treasuries rose, pushing the yield on five-year notes to almost the lowest level since June, as U.S. debt lured buyers after the European Central Bank cut its benchmark interest rate to a record low.

 

Fundamental policy decisions and high impact news events that could affect market sentiment on Friday November 8th

European news events in the morning session mainly concern the UK’s balance of payments, expected in at -9.1billion and Germany’s trade balance is expected in at +17.2 billion.

North American employment figures for Canada and the USA are published in the afternoon trading session. Canada’s unemployment rate is expected to rise to 7.0%, whilst the NFP jobs report for the USA is predicted to show that only 121K jobs were created in October. The unemployment rate in the USA may climb to 7.3%. The preliminary University of Michigan sentiment report is published expected to show a figure of 74.6.

China delivers a raft of information late on Friday evening, the high impact news items will centre on the inflation levels, CPI expected in at 3.3%, new loans at circa 800 bn, and industrial production expected in at 10.1% up year on year.

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