All eyes on the FOMC meeting conclusion as investors get ready for the taper to recommence
The USA dominated the financial news on Tuesday, starting with durable goods orders which came in down -4.3% for December, after a 2.6% rise in November. Now despite missing expectations (by some margin) and many analysts being shocked, if we take a cursory look at the prints throughout 2013 we can clearly see falls of -7.2% and -5.2% and these weren’t down to seasonal factors. Therefore this latest poor print is not necessarily the outlier result many thought and the pattern will probably return to growth next month. However, two negative prints in series and we’d be into interesting territory.
In other USA news the Conference Board consumer confidence index rose to 80.7 from the previous month’s figure of 77.5. Looking at the Richmond Fed manufacturing survey it came in at 12, just below the previous print of 13 but stable nevertheless.
Wednesday will see the end of the two day FOMC meeting, arguably the biggest fundamental policy decision of the year so far which could, if the Fed reduce stimulus by the figures predicted, send shockwaves throughout the markets globally.
The belief is that Fed policy makers will reduce purchases of Treasury and mortgage debt for a second time, to $65 billion a month, after the meeting concludes. Further, the belief is that the central bank will cut its purchases in $10 billion increments over the next six policy meetings before finally announcing an end to the programme no later than December. Monetary stimulus has pushed the Fed’s balance sheet to $4.1 trillion, from $2.9 trillion at the beginning of last year.
Then there’s the other sticky problem that USA lawmakers must wrestle with over the coming weeks; the debt ceiling. On Tuesday USA Treasury Secretary Jacob J. Lew reiterated his recent request for Congress to raise the federal debt ceiling as soon as possible. The Treasury estimates that extraordinary measures used to stay within the limit will run out in late February.
The last debt-limit debate ended on October 17th, the day Lew said the U.S. would exhaust its borrowing authority and President Barack Obama signed legislation to suspend the limit until Feb. 7th ending a 16-day partial government shutdown.
The Conference Board Consumer Confidence Index Increases Again
The Conference Board Consumer Confidence Index which had rebounded in December, increased again in January. The Index now stands at 80.7 (1985=100), up from 77.5 in December. The Present Situation Index increased to 79.1 from 75.3. The Expectations Index increased to 81.8 from 79.0 last month. The monthly Consumer Confidence Survey. Based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch.
US Manufacturing Sector Remains Strong; Pace of Growth Steady
Manufacturing in the Fifth District maintained a steady pace of growth, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments continued at about last month’s pace, while the volume of new orders edged up. New hiring softened, while the average work week picked up and wage growth remained solid. The backlog of new orders slowed and vendor lead time flattened in January, as capacity utilization continued to rise. Manufacturers were less buoyant about their future business conditions than they were in December.
Orders for U.S. Durable Goods Unexpectedly Slumped in December
Orders for durable goods unexpectedly slumped in December by the most in five months, reflecting a broad-based retreat that raises the risk business investment will cool in early 2014. Bookings for goods meant to last at least three years dropped 4.3 percent after a 2.6 percent gain in November that was smaller than previously reported, a Commerce Department report showed today in Washington. The median estimate of 82 economists surveyed by Bloomberg called for a 1.8 percent advance.
Market overview at 11:30 PM UK time
The DJIA closed up 0.57%, SPX 0.61% and the NASDAQ up 0.35%. Euro STOXX closed up 0.80%, CAC up 0.98%, DAX up 0.62% and the UK FTSE up 0.33%.
Looking towards the market open the DJIA equity index future, at the time of writing (11:30 PM Tuesday) is up 0.54%, SPX future up 0.56% and the NASDAQ future is up 0.52%.
NYMEX WTI oil finished the day up 1.77% at $97.41 per barrel, NYMEX nat gas finished the day up 3.84% at $5.03 per therm. COMEX gold fell by 1.03% at $1250.50 per ounce, whilst silver was flat at $19.50 per ounce.
Forex focus
The yen weakened 0.3 percent to 102.89 per dollar mid-afternoon New York time after declining 0.7 percent. It touched 101.77 Monday, the strongest level since Dec. 6th. Japan’s currency dropped 0.3 percent to 140.61 per euro. The dollar slipped 0.1 percent to $1.3667 per euro.
The Swiss franc weakened for a second day, falling 0.2 percent against the dollar to 89.79 centimes per dollar. On Jan. 24th, it touched 89.03, its strongest level in more than three weeks.
The yen weakened for a second day versus the dollar amid signs that turmoil in emerging markets is abating and as better-than-forecast consumer-confidence data and corporate earnings shored up investor optimism.
The Aussie dollar rose 0.7 percent to 90.27 yen after adding 1.5 percent, its biggest advance in more than seven weeks. It gained 0.4 percent to 87.75 U.S. cents. China is Australia’s biggest trading partner.
The U.K.’s currency slipped 0.1 percent to $1.6564 mid-afternoon London time after climbing to $1.6668 on Jan. 24th, the highest level since May 2011. The pound added 0.1 percent to 82.36 pence per euro after strengthening to 82.23 pence. The pound stayed below $1.66 after a report showed the pace of Britain’s fourth-quarter economic expansion fell short of some analysts’ expectations.
Bonds briefing
Benchmark USA 10-year debt yields were little changed at 2.75 percent mid-afternoon New York time. The price of the 2.75 percent note due in November 2023 traded at 99 31/32. The yield reached 2.70 percent on Jan. 24th, the least since Nov. 26th.
Treasury 10-year note yields traded at almost a two-month low as the Federal Reserve is forecast to trim monthly bond-buying while holding its short-term interest-rate target at a record low after another report showed the U.S. economic recovery remains on an uneven path.
Fundamental policy decisions and high impact news events for January 29th
Wednesday sees the GFK German consumer climate index published, which should come in at 7.8, up from the 7.6 previously. In the UK the Nationwide house price index is expected to print at 0.7% for the last month. Later on the UK’s BoE governor Mark Carney will hold court and presumably he’ll explain his ‘volte-face’ regarding the forward guidance he appeared to violate late last week when he suggested that UK base rates will not now rise should the UK’s unemployment rate fall to 7% from its current level of 7.1%. In Europe private loans are expected to have fallen by 2.3% over the month.
In the USA crude oil storage/inventory figures will be released with the last print at 1.0 million barrels. The FOMC will make its statement regarding the USA base rate, expected to remain at 0.25% and reveal any decision regarding the tapering of monetary easing.
Late evening New Zealand will publish its base rate, the expectation is that the rate will remain unchanged at 2.5%, still considerably up and out of step with many other developed country’s base rates. The accompanying RBNZ central bank statement may offer up clues, through forward guidance, as to if the bank considered lowering rates during their latest meeting.
Retail sales figures for Japan will be published late Wednesday with the expectation that the print will be up 3.9% versus the previous month’s figure of 4.1%.
Australia’s import prices for the quarter are expected in at 2.1%, up versus 6.1% up previously. China’s final manufacturing PMI is predicted to come in at a similar level to the previous month at 59.6.
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