Inflation falls in the EU raising concerns of deflation whilst positive USA data and a resolution in Crimea encourages global markets to rise higher

Mar 18 • Morning Roll Call • 1946 Views • Comments Off on Inflation falls in the EU raising concerns of deflation whilst positive USA data and a resolution in Crimea encourages global markets to rise higher

shutterstock_81717793Inflation in the EU has fallen to what many analysts and policy makers are fearing could be “dangerous” deflationary levels. The inflation rate has fallen by 1.1% in the year to date to reach 0.8%. This level could cause policy makers in the ECB to consider using one of two tools they have in their toolbox; lowering interest rates or bypassing their remit by engaging in forms of quantitative easing or asset purchasing. The worry of deflation is already live and present in certain states such as Cyprus, where prices are currently depressed by -1.3%.

In the USA The March 2014 Empire State Manufacturing Survey came in slightly below expectations at 5.6, encouragingly new orders rose by three points to 3.1. However, the unfilled orders index fell further into negative territory, declining ten points to -16.5, and the inventories index advanced to 7.1, pointing to rising inventory levels.

Finally in the USA we received data on Monday regarding builder confidence in the market for newly-built, single-family homes, the index rose one point to 47 on the National Association of Home Builders/Wells Fargo Housing Market Index.

Euro area annual inflation down to 0.7%

Euro area annual inflation was 0.7% in February 20142, down from 0.8% in January. A year earlier the rate was 1.8%. Monthly inflation was 0.3% in February 2014. European Union annual inflation was 0.8% in February 2014, down from 0.9% in January. A year earlier the rate was 2.0%. Monthly inflation was 0.3% in February 2014. These figures come from Eurostat, the statistical office of the European Union. In February 2014, negative annual rates were observed in Bulgaria (-2.1%), Cyprus (-1.3%), Greece (-0.9%), Croatia (-0.2%), Portugal and Slovakia (both -0.1%). The highest annual rates were recorded in Malta and Finland (both 1.6%).

New York Empire State Manufacturing Survey

The March 2014 Empire State Manufacturing Survey indicates that business conditions continued to improve for New York manufacturers, though activity grew slowly. At 5.6, the general business conditions index was little changed from last month. The new orders index climbed three points to 3.1, indicating that orders were slightly higher, and the shipments index inched up to 4.0. The unfilled orders index fell further into negative territory, declining ten points to -16.5, and the inventories index advanced to 7.1, pointing to rising inventory levels.

US Builder Confidence Treads Water in March

Builder confidence in the market for newly-built, single-family homes rose one point to 47 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. “The March HMI mirrors last month’s sentiment, as builders continued to be affected by poor weather and difficulties in finding lots and labor,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del. “A number of factors are raising builder concerns over meeting demand for the spring buying season.”

Market overview at 10:30 PM UK time

The DJIA closed up 1.13%, the SPX up 0.96%, NASDAQ up 0.81%. Euro STOXX closed up 1.48%, CAC up 1.32%, DAX up 1.37%, FTSE up 0.62%. The DJIA equity index future is up 0.09%, SPX future up 0.07% and the NASDAQ future up 0.08%. Euro STOXX future is up 1.57%, DAX future up 1.43%, CAC future up 1.26%, FTSE future up 0.75%.

NYMEX WTI oil finished the day down 0.82% at $98.08 per barrel, NYMEX nat gas was up 2.51% at $4.54 per therm. COMEX gold lost 0.44% at $1372.90 per ounce, with silver down 0.64% at $21.28 per ounce.

Forex focus

The yen fell versus 15 of its 16 major peers, weakening by 0.4 percent to 101.77 per dollar early evening New York time after strengthening 1.9 percent last week. Japan’s currency dropped 0.5 percent to 141.68 per euro. Europe’s 18-nation currency appreciated less than 0.1 percent to $1.3922 after dropping 0.3 percent earlier. The yen weakened for the first time in six days against the dollar as rallies in Russian stocks and the ruble alleviated concerns that Crimea’s vote to leave Ukraine would immediately lead to further turmoil in the region.

Australia’s dollar and the Swedish krona led gains among the dollar’s 16 most-traded counterparts, advancing 0.7 percent and 0.6 percent. Wespac Banking Corp. dropped its forecast for further Australian interest-rate cuts this year, increasing the appeal of Aussie assets.

The pound traded at $1.6645 late London time after advancing to $1.6823 on Feb. 17th, the strongest level since November 2009. The U.K. currency declined 0.2 percent to 83.69 pence per euro.

The pound has weakened against all 16 of its major counterparts this month as the Bank of England’s guidance on the future path of interest rates has weighed against data that suggests the recovery is strengthening.

Bonds briefing

Gilts fell with U.S. Treasuries as Russian stocks rallied after a referendum paved the way for President Vladimir Putin to annex Crimea. The U.S. and European Union have deemed the referendum illegal.

The yield on the U.K. 10-year gilt rose two basis points, or 0.02 percentage point, to 2.68 percent after dropping to 2.64 percent on March 3rd, the lowest since Nov. 5th. The 2.25 percent bond due in September 2023 fell 0.155, or 1.55 pounds per 1,000-pound face amount, to 96.395. Gilts have returned 3 percent this year through March 14th, according to Bloomberg World Bond Indexes. Treasuries gained 2.1 percent, while German securities gained 2.6 percent.

Benchmark 10-year yields rose four basis points, or 0.04 percentage point, to 2.69 percent at 5 p.m. New York time. The 2.75 percent note due February 2024 dropped 10/32, or $3.13 cents per $1,000 face amount, to 100 1/2.

Yields on the notes declined 13 basis points last week, the most since the period ended Jan. 10th, while touching 2.61 percent on March 14th, the lowest since March 4th. Treasury 10-year notes declined, after posting the biggest gain in two months last week, before the Federal Reserve begins a meeting that analysts said will see policy makers further scale back bond-purchase stimulus.

Fundamental policy decisions and high impact news events that could affect market sentiment on Tuesday March 18th

Tuesday sees Australia’s central bank publish its monetary policy meeting notes, China publishes its foreign investment data year to date, Italy’s trade balance should come in at €2.47 per month positive. The ZEW economic reading for Germany and Europe is published with the expectation that Germany will deliver a reading of 52.8 with Europe’s at 67.3. Europe’s trade balance is expected to show a reading of €13.9 bn.

Canada’s manufacturing sales are expected in at 1.1% up on the month. USA building permits are anticipated to come in at 0.97 million. Core CPI and CPI for the USA is expected in at 0.1%. Housing starts should come in at 0.92. In Canada the central bank governor Poloz speaks as does the UK’s Mark Carney. New Zealand’s trade balance is anticipated to come in at -$1.44 bn. Japan’s trade balance is expected to come in at -¥0.89 trillion.
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