The DJIA pushed back through the critical 16500 handle on Tuesday as a much better than anticipated balance of payments print for the USA cheered American investors. The market was expecting a print of circa $40 billion as a deficit, but the figure came in at $34.3 billion and looking at historical precedents it’s a very good figure for the time of year, particularly when the consumer capital of the western world has just sucked in gargantuan amounts of imports in order to satisfy consumer demand over the extended holiday period.
Over in Europe the annual inflation figure came in at 0.8%, as always with inflation data it can’t please everyone in the analyst community at the same time. Consumers are paying less, which is good, however, the ECB have gone on record as stating that a 2% inflation target is a viable and healthy target as they’re ‘scared’ of deflation negatively affecting the economy. You do get the impression that if the USA published inflation data of below one percent the USA mainstream media would be doing cartwheels suggesting that the consumer has never had it so good.
Staying in Europe, now it’s out of the troika governed bail out, Ireland has re-entered the debt selling arena and its first foray back into the land of normality – raising debt to function, has gone well. Ireland was looking to raise between €3-4 bn for its 10 year debt sale on Tuesday and had bids up to €14 bn. The interest rate is at 3.5% which is only 0.5% above that which the UK is currently paying.
Finally the other issue of note which may have encouraged the DJIA to break back through the 16,500 was the speech by Boston Fed President Eric Rosengren. He said in a speech in Hartford, Connecticut, that in economic terms “we remain far from where we need to be” and that the Q.E. stimulus programmes will be wound down very gradually.
Rosengren warned of the damage high unemployment could do, leaving scars on both the labour market and the overall economy. Rosengren, now a non-voting member, but the only dissenting voice against tapering last month stated:
[quote]These long-term labor markets scars, which result from a very slow recovery, lead me to believe that the Federal Reserve should remain highly accommodative and wind down our extraordinary programs only very gradually, in order to minimize the costs and risks of not returning to full employment more quickly.[/quote]
Trade Deficit in U.S. Shrank More Than Expected, Dropping 12.9% to $34.3 Billion in November
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total November exports of $194.9 billion and imports of $229.1 billion resulted in a goods and services deficit of $34.3 billion, down from $39.3 billion in October, revised. November exports were $1.7 billion more than October exports of $193.1 billion. November imports were $3.4 billion less than October imports of $232.5 billion. In November, the goods deficit decreased $4.9 billion from October to $53.9 billion.
Euro area annual inflation down to 0.8%
Euro area annual inflation is expected to be 0.8% in December 2013, down from 0.9% in November, according to a flash estimate4 from Eurostat, the statistical office of the European Union. Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have the highest annual rate in December (1.8%, compared with 1.6% in November), followed by services (1.0%, compared with 1.4% in November), non-energy industrial goods (0.2%, stable compared with November) and energy (0.0%, compared with -1.1% in November).
Bond sale success for Ireland as investors scramble
Success for Ireland in the bond market Tuesday, investors rushed to buy a 10-year Irish sovereign bond, the first offering since its bailout ended last month. Ireland was looking to raise between €3bn and €4bn, and actually received around €14bn worth of bids, according to the bank’s ‘i no were handling the sale. It looks like the bonds will be sold at a yield, or interest rate, of perhaps 3.5%. That’s only 0.5% points above UK 10-year borrowing costs.
Market overview at 10:30 PM January 7th
The DJIA closed up 0.64% at 16530, the SPX up 0.61%, the NASDAQ up 0.96%. European equities enjoyed a bullish two sessions with euro STOXX up 1.36%, CAC up 0.83%, DAX up 0.83% and the UK FTSE up 0.37%. Looking towards the market open on January 8th the DJIA equity index future is up 0.56%, the SPX up 0.54% and the NASDAQ equity future is up 0.91%. DAX future is up 0.77%, CAC up 0.77%, FTSE future up 0.34%.
NYMEX WTI oil finished the day up 0.50% at $93.90 per barrel with NYMEX nat gas up 0.51% at $4.33 per therm. COMEX gold finished the day down 0.53% at $1231.50 per ounce, with silver on COMEX down 1.16% at $19.87 per ounce.
Forex focus
The Dollar Spot Index tracking the currency versus its 10 major peers, rose 0.3 percent to 1,026.44 late in New York after declining 0.2 percent yesterday, the first drop in a week.
The franc dropped 0.5 percent to 1.2378 per euro, the biggest decline since Dec. 18th. It earlier slid to 1.2379, the weakest since Sept. 17th. The yen declined 0.3 percent to 104.52 per dollar after adding 0.6 percent Monday, the biggest gain since Oct. 23rd. The euro fell 0.1 percent to $1.3616.
The Canadian dollar sank to a three-year low after a previously reported trade surplus in October was revised to a deficit. Canada has had 23 consecutive trade gaps through November. A purchasing-manager index also unexpectedly fell. The loonie, as the Canadian dollar is known depreciated 1.1 percent to C$1.0774 per U.S. dollar. The currency reached C$1.0775, the weakest since May 2010.
The dollar gained after a report showed the U.S. trade deficit shrank more than forecast in November as oil imports dropped to the lowest level in three years, boosting the appeal of American assets.
The franc has dropped 1.2 percent this year (2014), the worst performer of the 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indices. The euro has dropped 0.2 percent and the dollar has gained 0.8 percent.
Bonds
The current three-year note yield was little changed at 0.75 percent late in New York Tuesday. The price of the 0.625 percent note maturing in December 2016 was 99 5/8. The benchmark 10-year yield fell two basis points, or 0.02 percentage points, to 2.94 percent, after climbing to 3.05 percent on Jan. 2nd, the highest since July 2011.
Treasuries rose, pushing the yield on the 10-year note lower for a second day, as Federal Reserve Bank of Boston President Eric Rosengren said the central bank should cut stimulus “only gradually” as the economy recovers.
Fundamental policy decisions and high impact news events that could affect market sentiment on January 8th
Wednesday witnesses the publication of the German trade balance, anticipated to come in at €18.9 bn positive for the month. The German Federal Constitutional Court is due to announce a ruling regarding the constitutionality of the ECB’s Outright Monetary Transactions policy (OMT).
Italy’s unemployment rate is expected in at 12.6%, whilst Europe’s unemployment rate is expected to print at 12.1%, with retail sales expected to come in up 0.2%. Germany’s factory orders are expected to rise by 1.2% month on month.
The USA ADP employment change is expected in at +199K, crude oil inventories may come in similar to the previous week’s reading of -7.0 million barrels down. After a ten year bond auction by the USA, the FOMC meeting minutes are produced. Consumer credit numbers for the USA will be published; the anticipation is for a print at $14.8 bn down from the $18.2 bn previously.
Late in the evening session focus turns to building consents in New Zealand with the anticipation for a print to be positive from the fall of 0.6% previously. Building approvals for Australia are published, with analysts expecting an improved print of -0.9% from the previous fall of -1.8%. Retail sales in Australia are expected in up by 0.5%. China’s CPI is published late on Wednesday, expected in at 2.7%.
