DJIA recovers some lost ground, Aussie dollar smashes through R2, whilst USA factory orders fall by 1.5%

Feb 5 • Morning Roll Call • 2674 Views • Comments Off on DJIA recovers some lost ground, Aussie dollar smashes through R2, whilst USA factory orders fall by 1.5%

shutterstock_171004496After it’s circa 325 points sell off on Monday the DJIA settled to close up 0.47% on the day on Tuesday. Still below the critical handle of 15,500 which (with hindsight) very few analysts expected to be breached within a week of the USA FOMC’s taper being increased, albeit by only $65 billion when the FOMC met last week.

That 15,500 level may now prove to be a natural level for many orders; buy, sell and limit, to be clustered over the next few days. Should we see a significant break upwards then we could realistically begin to pencil 16,000 as back in target and range. However, a significant break below that level of 15,500, perhaps if USA lawmakers can’t agree to raise the debt ceiling, or if the emerging markets contagion worsens, could see 15,000 as the next critical handle.

We received a speech delivered by FOMC member Lacker on the Richmond Fed’s economic outlook on Tuesday. More of the same platitudes with very little in the way of forward guidance. What news we did get from the USA on Tuesday mainly concerned factory orders falling by 1.5%…

Despite coming in above the expectation of 1.8% it was still a poor print with the ‘blame’ being dumped on a lack of durable goods orders due to seasonal factors – Xmas holidays and impossibly bad weather. However, the lack of durable goods orders should be of concern given the seasonal sales initiatives many retail stores offered in December and January, not acting as a ‘pull through’ to the retail sales in the pipeline.

Consumer confidence also took a dent in the USA on Tuesday, as is our tradition and habit we provide small snapshots of the major high impact news events of the preceding day in our complete article, but this part is worth highlighting early as it’s a critically poor print and actually mentions the recession post 2007;

The IBD/TIPP Economic Optimism Index dropped by 0.3 points, or 0.7% in February, posting a reading of 44.9 vs. 45.2 in January. The index is 0.4 points above its 12-month average of 44.5, 0.5 points above its reading of 44.4 in December 2007 when the economy entered the recession, and 4.5 points below its all-time average of 49.4.

In terms of price action, regarding the major and or commodity pairs, it was the Australasian currencies of New Zealand’s kiwi and Australia’s dollar that enjoyed the biggest moves of the day, way before UK day traders and USA investors had woken for their day’s work. Versus their major peers, in particular the USA dollar, both pairs powered through R2. The reason being the RBA commitment to maintain their rate of 2.5% without suggesting further accommodative monetary easing.

In the euro area the main news on the day was the inflation report citing that inflation had fallen to 0.2%. Once again this may raise fears, within the ECB and investment community, that deflation may become an issue.

Lacker: Economic Outlook, February 2014

Although recent data releases have some forecasters predicting GDP growth of around 3 percent later this year, my own projection is more modest, just a little above 2 percent. One reason for this projection is greater caution on the part of both lenders and consumers. In addition, policy uncertainty has led some businesses to postpone possible investments. Although residential investment has increased significantly, it makes up only a small portion of GDP. A long-run increase in overall output requires a substantial increase in labor productivity growth or in employment growth.

U.S. factory orders fall 1.5% in December

Orders for goods produced in U.S. factories fell 1.5% in December, the U.S. Commerce Department reported Tuesday. Economists polled by MarketWatch had expected orders to drop 2%, pulling back after originally estimated growth of 1.8% for November, led by a drop for durable goods. On Tuesday the government revised November’s growth to 1.5%. Orders for durable goods in December – products meant to last at least three years – fell 4.2% in December. Orders for nondurable goods rose 1.1%.

Industrial producer prices up by 0.2% in Euro area

In December 2013, compared with November 2013, industrial producer prices rose by 0.2% in both the euro area (EA17) and the EU28, according to estimates from Eurostat, the statistical office of the European Union. In November prices fell by 0.1% in both zones. In December 2013, compared with December 2012, industrial producer prices decreased by 0.8% in the euro area and by 0.6% in the EU28. The average industrial producer prices for the year 2013, compared with 2012, dropped by 0.2% in the euro area and remained stable in the EU28.

US Consumer Confidence Edges Down In February

The IBD/TIPP Economic Optimism Index dropped by 0.3 points, or 0.7% in February, posting a reading of 44.9 vs. 45.2 in January. The index is 0.4 points above its 12-month average of 44.5, 0.5 points above its reading of 44.4 in December 2007 when the economy entered the recession, and 4.5 points below its all-time average of 49.4. Note: Index readings above 50 indicate optimism; below 50 indicate pessimism. The IBD/TIPP Economic Optimism Index has a good track record of foreshadowing the confidence indicators put out later each month by the University of Michigan and The Conference Board.

Market overview at 10:00 PM UK time

The DJIA closed up 0.47% at 15445. SPX up 0.76% with the NASDAQ up 0.86%.  Euro STOXX closed down 0.05%, CAC up 0.24%, DAX down 0.64% and the UK FTSE down 0.25%.

The DJIA equity index future is up 0.30%, SPX up 0.63% and the NASDAQ future is up 0.61%. Euro STOXX future is up 0.03%, DAX future down 0.58%, CAC up 0.22% with the FTSE future down 0.16%.

NYMEX WTI oil closed up on the day 1.24% at $97.63 per barrel, with NYMEX Nat gas exploding to the upside closing up 6.91% to $5.29 per therm. COMEX gold slipped by 0.44% to $1254.40 per ounce with silver up 0.37% at $19.48 per ounce.

Forex focus

The yen weakened 0.6 percent to 101.62 per dollar mid-afternoon New York time, after appreciating to 100.76, the strongest level since Nov. 21st. It dropped 0.6 percent to 137.32 per euro. The 18-nation shared currency lost 0.1 percent to $1.3514 after touching $1.3477 yesterday, the weakest level since Nov. 22nd. The yen weakened from its strongest level in more than two months against the dollar as a rally in emerging-market currencies damped demand for haven assets.

The pound was little changed versus the dollar at $1.6306 after earlier touching $1.6257, the lowest level since Dec. 17th. The U.K. currency appreciated 0.1 percent to 82.85 pence per euro.

Sterling gained 9.3 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indexes, as Britain’s economic recovery gathered pace. The euro and the dollar rose 5.3 percent.

Bonds briefing

The yield on 10-year gilts rose one basis point, or 0.01 percentage point, to 2.70 percent late afternoon London time after dropping to 2.68 percent, the lowest level since Nov. 8th. The 2.25 percent bond due in September 2023 fell 0.1, or 1 pound per 1,000-pound face amount, to 96.21. U.K. government bonds declined for the first time in five days after a report showed a gauge of U.K. construction output unexpectedly accelerated last month.

U.S. 10-year note yields rose four basis points, or 0.04 percentage point, to 2.62 percent in New York late afternoon. The 2.75 percent note due in November 2023 fell 11/32, or $3.44 per $1,000 face amount, to 101 3/32. The yield dropped to 2.568 percent yesterday, the lowest since Nov. 1st. It rose to 3.05 percent, a 2 1/2-year high, on Jan. 2nd. Treasury 10-year notes declined for the first time in three days amid speculation a rally that pushed yields to a three-month low amid tumbling emerging markets and weaker U.S. data is losing momentum.

Fundamental policy decisions and high impact news events for February 5th

Wednesday focus returns to PMIs, the final services for Europe is expected in at 51.9, services PMI for the UK is expected in at 59.1. Retail sales for Europe are predicted to come in down -0.7% on the month of January.

The ADP jobs numbers are expected to show that the USA created an extra 191K jobs over the past month. This is the pre-cursor to the NFP number therefore it tends to be keenly watched. Building permits for Canada should have risen by 2.3% according to analysts’ expectations whilst the USA final services PMI number should come in at 56.6, no change.

The ISM non-manufacturing PMI is expected in at 53.8. Crude oil inventories are published whilst FOMC member Mr. Plosser will deliver a speech. New Zealand enjoys a bank holiday Wednesday/Thursday, whilst China’s new year holiday continues.

Australia’s retail sales are expected in up 0.5%, whilst the trade balance is expected in at $0.23 bn. The NAB quarterly business confidence index is expected to come in similar to the reading of 3 previously. Japan will conduct a thirty year bond auction.

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