Fears of a China-led global slowdown and uninspiring U.S. data caused a selling frenzy on Wall St and throughout Europe on Thursday that ended with equities closing with their worst loss of the year. Major stock indices, such as the DJIA, closed down more than 1 percent in a sell off; the dollar fell, whilst Treasuries rallied.
Emerging markets also reacted badly to the Chinese purchasing managers’ report, from HSBC in conjunction with Markit Economics that showed an unexpected contraction in January, to 49.6, from 50.5 last month. Earlier in the week, China reported slowing economic growth for the fourth quarter, with GDP easing to 7.7 percent from 7.8 percent.
The unconvincing USA data published Thursday included an existing home sales publication courtesy of the NAR revealing that, despite the hype, home sales over the year were 0.6% below the December 2012 figure at 4.82 million.
USA manufacturing output reached a three month low according to Markit Economics PMI, naturally the poor weather was the readymade excuse, but analysts appeared to not be entirely convinced. The diffusion index fell to 53.7 in January from 55 in December. Still above the median fifty line that represents the difference between contraction and growth, but none the less it was a disappointing print.
USA weekly unemployment claims weren’t too impressive either on Thursday, at 326,000 it was up from the previous week’s revised number of 325,000. The adjusted continual weekly claims number is just over three million and stubbornly, despite the supposed fall in unemployment numbers appears to have hovered around this number for several months if not years. January 24th 2013 the figure was 330,000.
Canada published its latest available retail figures for November on Thursday, retail sales rose by 0.6%, the sixth continual rise in as many months. A 1.2% rise in the sales of motor vehicles and associated parts etc., helped boost the figures for November.
For those of us who keep a weather eye on other currency movements the Argentinian peso was hammered in Thursday’s trading sessions, falling by circa 18%. Yes you read that right, 18%. It’s not a currency pair available on most platforms, but need we remind you of the need for a stop, even what we term a “disaster stop”? Whilst we can’t imagine yen or the euro ever dropping by that in just over a day, you can be sure that out there, in our forex trading institutional world in South America, there’s traders just like us nursing the ultimate FX headache having traded without stops. Moreover, with crippling levels of inflation and a collapsing currency, ordinary Argentinians are also experiencing tremendous economic pain.
The Argentine currency dropped after Cabinet Chief Jorge Capitanich told reporters that the central bank won’t be intervening in the peso’s decline, allowing the market, which is mostly closed to buyers of dollars, to adjust prices.
The peso fell as much as 18 percent, the biggest decline since 2002, when the government abandoned their one-to-one peg with the U.S. dollar following a record $95 billion default. Argentina’s peso dropped the most in 12 years, leading a plunge in Latin American currencies, after the central bank scaled back its intervention to control the rate in a bid to preserve international reserves.
December Existing-Home Sales Rise, 2013 Strongest in Seven Years
Existing-home sales edged up in December, sales for all of 2013 were the highest since 2006, and median prices maintained strong growth, according to the National Association of Realtors. Total existing-home sales, which are completed transactions that include single-family homes, town-homes, condominiums and co-ops, increased 1.0 percent to a seasonally adjusted annual rate of 4.87 million in December from a downwardly revised 4.82 million in November, but are 0.6 percent below the 4.90 million-unit level in December 2012. For all of 2013, there were 5.09 million sales.
US output growth hits three-month low amid disruptions from ‘big freeze’ in January
Manufacturing PMI falls for the first time since last October reflecting slower output and new order growth. Extreme weather leads to sharpest lengthening of suppliers’ delivery times since August 2008 Data collected 13 – 22 January 2014. At 53.7 in January, down from 55.0 in December, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index, which is based on approximately 85% of usual monthly replies, signalled the slowest improvement in overall business conditions for three months. That said, the index was above the neutral 50.0 mark.
Canada Retail Trade, November 2013
Retail sales rose 0.6% in November to $41.0 billion, the fourth increase in five months. This increase was largely attributable to higher sales at motor vehicle and parts dealers as well as electronics and appliance stores. Gains were observed in 9 of 11 sub-sectors, accounting for 72% of retail trade. Weather and the timing of new product releases had a greater effect on monthly sales than promotional events in November such as Black Friday. In volume terms, retail sales rose 0.8%. A 1.2% increase at motor vehicle and parts dealers accounted for the largest sales gain among all sub-sectors.
US Unemployment Insurance Weekly Claims Report
In the week ending January 18, the advance figure for seasonally adjusted initial claims was 326,000, an increase of 1,000 from the previous week’s revised figure of 325,000. The 4-week moving average was 331,500, a decrease of 3,750 from the previous week’s revised average of 335,250. The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending January 11, unchanged from the prior week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending January 11 was 3,056,000, an increase of 34,000 from the preceding week’s revised number.
Market overview at 10:30 PM UK time on Thursday January 23rd.
The DJIA closed down 1.07% at 16197, the SPX closed dos. 0.89% whilst the NASDAQ closed down 0.57%. The euro STOXX closed down 1.08%, the CAC down 1.02%, DAX down 0.92% and the UK FTSE closed down 0.79%.
Looking towards Friday’s market openings the DJIA equity index future is (at the time of writing, 10:30 UK time January 23rd) down 1.05%, the SPX future is down 0.79%, whilst the NASDAQ future is down 0.18%.
The Euro STOXX future is down 1.02%, DAX future is down 0.84%, CAC down 1.01% and the UK equity index future is down 0.70%.
NYMEX WTI oil finished the day up 0.61%, at $87.38 per barrel, NYMEX nat gas finished the day up 2.88% at $4.82 per therm. COMEX gold closed the day up 1.94% at $1262.60 per ounce with silver up 0.81% right on the dot of $20:00.
Forex focus
The euro rose 1.1 percent to $1.3695 late New York time, the biggest intraday rise since Dec. 27th. The 18-nation euro fell 0.2 percent to 141.28 yen. The yen increased 1.3 percent to 103.17 per dollar. The euro advanced the most in almost four weeks against the dollar as a measure of manufacturing in the region rose to the highest in more than 2 1/2 years, boosting optimism that growth in Europe is gathering pace.
Switzerland’s franc strengthened versus the dollar as the government in Bern agreed to the Swiss National Bank’s request to raise the amount of capital banks must hold to 2 percent from 1 percent, of risk-weighted positions secured by residential real estate, according to a statement. The currency added 1.6 percent to 89.74 centimes per U.S. dollar.
The Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, fell 0.5 percent to 1,030.31, ending a seven-day advance, the longest winning streak since May.
Bonds briefing
The U.S. 10-year debt yield fell nine basis points, or 0.09 percentage point, to 2.77 percent at the close in New York time. The 2.75 percent note due November 2023 rose 3/4, or $7.50 per $1,000 face amount, to 99 3/4. The yield reached the lowest level since Dec. 3rd, further below the 2.89 percent level on Dec. 18th. Treasuries rose the most in almost two weeks, pushing the 10-year note yield further below the level when the Federal Reserve voted last month to taper its bond purchases.
French five-year yields fell one basis point, or 0.01 percentage point, to 1.09 percent late afternoon London time, while the rate on similar-maturity German debt dropped three basis points to 0.81 percent. France’s 1 percent note maturing in November 2018 climbed 0.03, or 30 euro cents per 1,000-euro face amount, to 99.59. The 28 basis-point yield gap is the widest since Jan. 14th.
Fundamental policy decisions and high impact news events for January 24th
Friday we receive Italian retail sales month on month, the expectation is for a rise to 0.4%, up from the previous month’s negative -0.1% fall. In the UK the latest mortgage numbers are released courtesy of the UK’s BBA. The prediction is for a rise to 47.2K, up from 45K.
The week finishes with Canada’s core CPI data, expected in at -0.4% from -0.1% previously. CPI monthly is expected to have fallen by 0.2% month on month.
