Germany’s constitutional court is due to publish its findings regarding the ECB’s OMT (outright market transactions) programme

Jan 21 • Morning Roll Call • 2070 Views • Comments Off on Germany’s constitutional court is due to publish its findings regarding the ECB’s OMT (outright market transactions) programme

shutterstock_21401863The USA markets were closed on Monday due to their bank holiday in recognition of Martin Luther King. As a consequence the markets were relatively quiet throughout the day as the two main trading sessions concentrated on Europe singularly. However, despite there being very little in the way of high impact news events published on Monday, there were some fascinating publications that caused quite a stir, for very different reasons.

Oxfam published a startling statistic regarding wealth inequality globally. The conclusion reached was that the richest 85 individuals on the globe own approximately half of the planet’s assets and wealth. Sadly the report failed to outline how this inequality could be addressed, or how the status quo could be disrupted, but it was a startling fact none the less made particularly worse by the amount of wealth parked offshore in what is termed “socially useless” investment vehicles. The timing of the publication was critical, due to coincide with the World Economic Forum meetings being held in Davos, Switzerland this week.

The second report to cause a stir came as a precursor courtesy of the IMF. The IMF are due to publish a report Tuesday which will outline global growth for the coming year and the UK came out in front in terms of growth predictions. Globally the IMF expects growth to reach 3.6% in 2014.

IMF predicts strong growth for 2014

The IMF (International Monetary Fund) is expected to raise its outlook for the UK on Tuesday and the rest of the global economy hiking the UK’s growth forecasts by more than any other major economy. The IMF is expected to upgrade its outlook for the global economy, which in October it said would expand by 3.6% this year. That would reflect the cautious tone in a New Year’s speech from its managing director, Christine Lagarde, last week.

This crisis still lingers. Yet optimism is in the air: the deep freeze is behind, and the horizon is brighter. My great hope is that 2014 will prove momentous the year in which the seven weak years, economically speaking, slide into seven strong years.

Item club raises UK growth forecast

A publication from the UK’s Ernst Young Item Club on Monday forecast that the UK’s economic growth would pick up to 2.7% this year from 1.9% in 2013. However, it warned that the UK recovery was not built on solid foundations due to the pressure on household incomes. Peter Spencer, chief economic adviser to the EY ITEM Club;

It is hard to find another episode in time where employment has been rising and real wages falling for any significant period of time. The weakness of real earnings is proving to be the government’s Achilles heel and could prove to be the weak spot in the recovery. Consumers have reduced the amount they save to fund their spending sprees. But they cannot continue to drive growth for much longer without an accompanying recovery in real wages or a rise in their debt to income ratio.

Oxfam publishes a stark condemnation of wealth gap

Winnie Byanyima, the Oxfam executive director commented on their publication on Monday which stated that 85 of the world’s richest own circa said:

It is staggering that in the 21st Century, half of the world’s population that’s three and a half billion people own no more than a tiny elite whose numbers could all fit comfortably on a double-decker bus. In developed and developing countries alike we are increasingly living in a world where the lowest tax rates, the best health and education and the opportunity to influence are being given not just to the rich but also to their children.

Without a concerted effort to tackle inequality, the cascade of privilege and of disadvantage will continue down the generations. We will soon live in a world where equality of opportunity is just a dream. In too many countries economic growth already amounts to little more than a ‘winner takes all’ windfall for the richest.

New Zealand CPI rises 0.1 percent in December quarter

The consumer’s price index (CPI) rose 0.1 percent in the December 2013 quarter, Statistics New Zealand said on Monday. Higher international air fares and rising housing and dairy prices were partly countered by lower vegetable prices and cheaper petrol. International air fares rose 12 percent in the December 2013 quarter – the highest quarterly rise since the December 2009 quarter.

International air fares usually rise in December quarters. This quarter’s rise reflects seasonally higher air fares to Asia and Europe.

prices manager Chris Pike said.

Market snapshot at 10:30 PM UK time

Euro STOXX closed down 0.03%, CAC closed down 0.11%, DAX down 0.28% and the UK FTSE closed up 0.11%. Looking towards the market open on Tuesday the DJIA equity index future is down 0.01% at the time of writing, the SPX future is down 0.02% and the NASDAQ future is up 0.01%. The euro STOXX future is down 0.06%, the DAX future is down 0.34%, the CAC future is down 0.12%, whilst the UK FTSE future is up 0.10%.

NYMEX WTI oil finished the day down 0.69% at $93.72 per barrel whilst NYMEX nat gas finished the day down 1.46% at $4.26 per therm. Gold on COMEX finished the day up 0.21% at $1254.50 per ounce with silver up by 0.03% at $20.32 per ounce.

Gold traded near a five-week high in London as investors weighed signs of increasing physical safe haven demand, versus the outlook for less U.S. stimulus. Platinum rose to the highest since November on prospects for strikes in South Africa.

Forex focus

The yen climbed 0.1 percent to 104.18 per dollar late in New York. The dollar was 0.1 percent weaker at $1.3552 per euro after declining to $1.3508, the lowest since Nov. 25th. The yen was little changed at 141.18 per euro.

The yen has gained 2.3 percent this year, the second-best performer among 10 developed-market currencies tracked by Bloomberg’s Correlation-Weighted Indices. The dollar rose 1.1 percent and the euro has weakened 0.4 percent. New Zealand’s dollar has beaten the majority, appreciating 2.6 percent.

Sterling weakened 0.1 percent to 82.49 pence per euro on Monday. The U.K. currency was little changed at $1.6429 after rising and falling as much as 0.2 percent. The Dollar Spot Index, tracking the U.S. currency against 10 major counterparts, gained 0.1 percent to 1,033.15, the highest since Sept. 9th.

The franc touched a two-month low of 91.33 centimes per dollar on Monday. It advanced 5.1 percent from 2012 through 2013. The franc is the most overvalued currency against the greenback among 15 major peers, even after sliding 1.8 percent this year, according to the OECD (Organization for Economic Cooperation and Development) purchasing-power data. It’s also 32 percent too high versus the euro, after weakening 0.5 percent since Dec. 31st.

Bonds briefing

Ireland’s 10-year yield dropped 20 basis points, or 0.2 percentage point, to 3.24 percent at late p.m. London time, the biggest decline since Sept. 29th, 2011. The 3.4 percent bond maturing in March 2024 rose 1.695, or 16.95 euros per 1,000-euro ($1,356) face amount, to 101.335.

The two-year rate fell 10 basis points to 0.70 percent after decreasing to 0.66 percent, the lowest level since Bloomberg began tracking the securities in November 2003. Ireland’s bonds advanced for a fourth day after Moody’s Investors Service raised the nation’s credit rating back to what is termed investment grade, boosting confidence in the securities of the euro area’s most indebted nations.

Fundamental policy events and high impact news events that could affect market sentiment on January 21st

Tuesday we’re anticipating the German ZEW index to come in at 63.4, an increase from the previous month’s reading of 62. The overall ZEW reading for Europe is expected in at 70.2, up from 68.3 the previous month.

Germany’s constitutional court will be ruling on the legality of the ECB outright market transactions, a quantitative easing/asset purchase scheme that may have veered outside of the ECB’s remit. The German Federal Constitutional Court is due to announce a ruling regarding the constitutionality of the ECB’s Outright Monetary Transactions policy (OMT), in Karlsruhe mid-afternoon, quite what the effect would be of a ruling against the programme is tricky to predict.

The UK’s trade body, the CBI, will deliver its reading on the UK’s industrial orders expectations; the print is anticipated to come in at 11, down from 12.

From Canada the manufacturing sales print is expected in at 0.4%, down from 1%. Wholesale sales are predicted to fall to 0.6% monthly from previously 1.4%.

Late Tuesday attention shifts to Australia where the Westpac consumer sentiment index is expected to come in ahead of the negative -4.8% print last month. Australia’s CPI is expected in at 0.5%, down from 1.2% previously. At the end of Tuesday we receive a publication from Japan, the monetary policy statement; It’s amongst the primary tools the BOJ uses to communicate with investors about monetary policy. It contains the outcome of their decision on interest rates and commentary about the economic conditions that influenced their decision. Most importantly, it projects the economic outlook and offers clues on the outcome of future rate decisions.
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