It’s been a while since we experienced a significant sell off and risk off trading environment across many securities and indices. Monday’s trading sessions proved that the combination of; weak Chinese data, poor USA data and the looming debt crisis, was enough to send many investors to rush for the safe haven of precious metals…
The poor USA data began with the ISM business report which many analysts and commentators in the mainstream media, such as Reuters and Bloomberg, tried to play down after its publication asking; “how valid the data actually is?” However, investors weren’t convinced and the DJIA and SPX indices were amongst the biggest fallers on Monday. The ISM reading fell by 5.2% from December’s reading.
Continuing the poor data was the manufacturing PMI for the USA which, similar to the earlier reading from the UK, fell to a three month low, despite reaching an eleven month high in December 2013.
Completing the triple whammy of bad news for the USA economy and apparatus Treasury Secretary Lew reminded those who’ll listen, that the USA is burning through cash like advertisers during the latest Super Bowl and the country’s paymasters will run out of cash very soon due to the time of year. He’s citing the end of February as the doomsday, which is a slight improvement on the mid February previously stated, but nevertheless a chilling prospect.
All things considered a bad environment for trading as investors and market makers are beginning to wonder if the taper has come too early and too aggressively. What is for sure is that this month of February is already proving to be a pivotal period which is liable to be magnified over the coming days. Therefore traders should exercise caution and trade according to their trading plan, through what is the most uncertain window we’ve witnessed for some time.
January 2014 Manufacturing ISM Report On Business
Economic activity in the manufacturing sector expanded in January for the eighth consecutive month, and the overall economy grew for the 56th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business. The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee. The January PMI registered 51.3 percent, a decrease of 5.2 percentage points from December’s seasonally adjusted reading of 56.5 percent. The New Orders Index registered 51.2 percent, a significant decrease of 13.2 percentage points.
US Manufacturing PMI eases to three-month low in January
Adjusted for seasonal influences, the headline U.S. Manufacturing Purchasing Managers’ Index (PMI) 1 registered 53.7 in January, down from an 11-month high of 55.0 during December. The latest reading was the lowest since last October, but remained above the neutral 50.0 value and pointed to a solid improvement in business conditions. U.S. manufacturers indicated that output and new business growth rates slowed in January, with some attributing this to disruptions from the extreme weather conditions at the start of the year. The slowdown also reflected in part a drop in new export orders.
Treasury’s Lew warns that U.S. default could happen quickly
The Obama administration warned on Monday it could start defaulting on the government’s obligations “very soon” after hitting a limit on the national debt later this month. Treasury Secretary Jack Lew said the federal government should hit the ceiling by the end of February unless Washington raises the nation’s limit on public borrowing. The federal government would then burn through its remaining cash more quickly that it would at other times of the year because the Treasury will be issuing tax refund checks.
Market overview at 10:30 PM UK time
The DJIA closed down by 325 points and by 2.08% to fall below the critical psyche level and handle of 15500 at 15372. The SPX shed 2.28% whilst the NASDAQ lost 2.61% on the day. Euro STOXX closed down 1.66%, CAC down 1.39%, DAX down 1.29% and the FTSE down by 0.69%.
Looking towards the equity index futures the DJIA is currently at the time of writing (10:30 PM UK time) down 2.26%, SPX future is down 2.27% with the NASDAQ future down 2.19%. The Euro STOXX future is down 1.79%, DAX future is down 1.38%, CAC future is down 1.40% whilst the UK FTSE future is down 0.75%.
NYMEX WTI oil finished down 0.80% on the day at $96.71 per barrel, whilst NYMEX nat gas rose by 0.43% to $4.97 per therm. COMEX gold proved to be a safe haven during the risk off environment closing up 1.43% on the day at $1257.50 per ounce with silver up 1.05% at $19.32 per ounce.
Forex focus
The greenback fell 0.3 percent to $1.3529 per euro, after reaching $1.3477 earlier, the highest level since Nov. 22nd. The yen added 1 percent to 101.04 per dollar, and gained 0.7 percent to 136.72 per euro.
JPMorgan Chase & Co.’s volatility index for the currencies of Group of Seven nations rose to 8.66 percentage points, the highest reading in over a month. The dollar fell the most in three weeks as the ISM report and the PMI showing U.S. manufacturing slowed added to speculation whether the economy is strong enough for the Federal Reserve to accelerate reductions in its asset-purchase programme.
The pound fell 0.7 percent to $1.6322 late London time after sliding to $1.6319, the lowest level since Jan. 17th. The five-day decline is the longest losing streak since the period ended Dec. 17th. Sterling weakened 1.1 percent to 82.91 pence per euro, the biggest drop since March 7th. The pound slid for a fifth day versus the dollar after a report showed U.K. manufacturing expanded less in January than economists had forecast.
The pound has gained 10 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indices, as improving unemployment data fuelled speculation that the Bank of England would have to raise rates sooner than it predicted. The euro rose 4.6 percent and the dollar has strengthened 5.6 percent in the same period.
Bonds briefing
The 10-year UK gilt yield fell one basis point, or 0.01 percentage point, to 2.70 percent after climbing as much as five basis points. The price of the 2.25 percent bond due in September 2023 was 96.245. The UK Debt Management Office is scheduled to auction 4 billion pounds of bonds due in July 2019 Tuesday. The U.K. last sold five-year gilts on Dec. 12th at an average yield of 1.994 percent, compared with 1.905 percent at a previous auction on Nov. 21st.
The 10-year yield fell seven basis points, or 0.07 percentage point, to 2.57 percent late afternoon Monday in New York, the lowest level since Nov. 1st. It rose three basis points earlier. The price of the benchmark 2.75 percent security due in November 2023 gained 5/8, or $6.25 per $1,000 face amount, to 101 17/32. Treasuries rose, pushing 10-year note yields to the lowest in three months, after the private report showing U.S. manufacturing slowed more than forecast in January, adding to questions about the strength of the economic recovery. Rates doubled on U.S. bills due March 6th, after the Treasury Secretary Lew said it may exhaust extraordinary measures to fund the government at the end of February.
Fundamental policy decisions and high impact news events for February 4th
Tuesday the hope is that Spain’s unemployment numbers will have fallen, however, the data is unlikely to have improved from the -107K in the previous month, -22K is predicted. The UK’s Halifax houses rice data is expected to show increases of 0.4% month on month, the UK’s construction PMI is scheduled to have fallen in line with the ONS data of the previous week, the print is expected to come in at 61.6. Europe’s PPI is expected to come in at 0.3%.
In the afternoon session on Tuesday attention turns to the USA where factory orders month on month are expected to have fallen by -1.1%. The USA IBD/TIPP Economic optimism is expected in at 46.1.
Employment change in New Zealand q/q is expected to have fallen to 0.7% from 1.2% the previous month. The unemployment rate is expected to fall to 6%. China’s bank holiday is still on during Tuesday. Average wage rises in Japan are expected in up 0.7% for the month.
