After the relief rally of yesterday as the SPX reached a record high, due to a climb down and non-escalation of the Ukraine crisis, the main indices in the USA suffered a fairly neutral day on Wednesday with both main indices drifting slightly lower.
The poor jobs print from ADP, with the previous month’s number being revised downwards added to a poor ISM non-manufacturing report. The cumulative affect resulted in investors doubting as to just how concrete the foundations are supporting the USA continued recovery. These doubts were also manifest in the Beige Book report which reported improved levels of activity, but in most cases the increases were characterized as modest to moderate.
USA crude oil supplies have risen significantly and as a consequence WTI oil fell by close on 2% to fall close to the critical psyche level of $100 per barrel. Gasoline supplies fell by 1.6 million barrels, while distillate stockpiles unexpectedly rose 1.4 million barrels, according to the EIA.
Beige Book – March 5, 2014
Reports from most of the twelve Federal Reserve Districts indicated that economic conditions continued to expand from January to early February. Eight Districts reported improved levels of activity, but in most cases the increases were characterized as modest to moderate. New York and Philadelphia experienced a slight decline in activity, which was mostly attributed to the unusually severe weather experienced in those regions. Growth slowed in Chicago, and Kansas City reported that conditions remained stable during the reporting period. The outlook among most Districts remained optimistic. Retail sales growth weakened since the previous.
US February 2014 Non-Manufacturing ISM Report On Business
Economic activity in the non-manufacturing sector grew in February for the 49th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business. The report was issued today by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management (ISM) Non-Manufacturing Business Survey Committee. “The NMI registered 51.6 percent in February, 2.4 percentage points lower than January’s reading of 54 percent. The Non-Manufacturing Business Activity Index decreased to 54.6 percent, which is 1.7 percentage points lower than the reading of 56.3 percent previously reported.
U.S. crude-oil supply up 1.4 million barrels: EIA
Oil futures lost more ground on Wednesday following weekly data that showed a climb in crude supplies that was generally what the market expected. The U.S. Energy Information Administration said crude stockpiles rose 1.4 million barrels for the week ended Feb. 28. Analysts polled by Platts were looking for a climb of 1.5 million barrels. Gasoline supplies fell by 1.6 million barrels, while distillate stockpiles unexpectedly rose 1.4 million barrels, according to the EIA. Gasoline and distillate stockpiles were expected to fall by 1.5 million barrels each, according to the Platts poll.
US Service Sector Output Growth Slows Sharply Amid Weather Disruptions in February
February data signalled a marked slowdown in U.S. service sector output growth, but new business volumes increased at a similarly robust pace to that seen in the previous month. Survey respondents widely commented on disruptions of business activity from unusually bad weather and, as a result, service providers recorded a renewed increase in backlogs of work in February.
Meanwhile, inflationary pressures continued to subside during the latest survey period, with input costs and output charges both rising at slower rates than in January. Adjusted for seasonal influences, the final Markit U.S. Services PMITM Business Activity Index dipped sharply to 53.3 in February, from 56.7 in the previous month. Although the index was above the 50.0 no-change mark and signalled a solid pace of expansion, the latest reading was the lowest since October 2013.
ADP: Private Sector Employment Increased by 139,000 Jobs in February
Private sector employment increased by 139,000 jobs from January to February according to the February ADP National Employment Report. Broadly distributed to the public each month, free of charge, the ADP National Employment Report is produced by ADP, a leading global provider of Human Capital Management (HCM) solutions, in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total non-farm private employment each month on a seasonally-adjusted basis. Goods-producing employment rose by 19,000 jobs in February, up from a downwardly-revised figure of 12,000 in January.
Market overview at 9:00 PM UK time
The DJIA closed down 0.23%, SPX down 0.11% and the NASDAQ closed flat on the day. Euro STOXX closed down 0.01%, CAC down 0.11%, DAX down 0.49%, UK FTSE down 0.71%. The DJIA equity index future is down 0.25%, the SPX future down 0.04% NASDAQ future is up 0.17%.
NYMEX WTI oil fell by 1.98% to $101.28 per barrel with NYMEX nat gas down 2.68% at $4.54 per therm. Gold on COMEX was down 0.04% on the day at $1337.40 per ounce with silver down 0.08% at $21.20 per ounce.
Forex focus
The yen weakened 0.1 percent to 102.30 per dollar mid-afternoon in New York after falling to 102.55, its lowest level since Feb. 26th. It appreciated to 101.20 on March 3rd, the strongest level since Feb. 5th. The yen fell 0.1 percent to 140.52 per euro. Europe’s shared currency was little changed at $1.3735. The yen fell to a one-week low versus the dollar on reduced demand for safer assets as Russian and U.S. diplomats met in Paris to address issues surrounding the political crisis in the Ukraine.
Canada’s dollar reached the highest level in two weeks after the Bank of Canada kept the overnight rate on loans between commercial banks at 1 percent for the 28th straight meeting. The currency fell to a 4 1/2 year low in January as investors bet on lower interest rates after the central bank said inflation would stay near the bottom of its 1 percent-to-3 percent target band this year and flagged the strong currency as a headwind to exports. The loonie, as the currency is nicknamed, gained 0.4 percent to C$1.1047 versus the U.S. dollar.
The British pound strengthened versus most of its major counterparts after an industry report showed U.K. services output expanded in February, adding to signs Britain’s economy is gaining momentum. Sterling appreciated 0.4 percent to 82.11 pence per euro after gaining 0.5 percent, the biggest increase since Feb. 12th.
Bonds briefing
The 10-year note yield dropped one basis point, or 0.01 percentage point, to 2.69 mid-afternoon New York time. The yield traded in a 3.95 basis-point range, the narrowest since Feb. 10th. The price of the 2.75 percent note due February 2024 fell 1/32; 31 cents per $1,000 face value, to 100 15/32.
The benchmark yield jumped 10 basis points, or 0.1 percentage point, yesterday, the biggest on a closing basis since Nov. 8th as easing tensions in the Ukraine reduced demand for haven assets. It touched 2.59 percent on March 3rd, the lowest since Feb. 4th.
Fundamental policy decisions and high impact news events for March 6th
Thursday sees the publication of Australia’s retail sales expected in up 0.5% with the trade balance at $0.11 bn.
Europe’s retail PMI is published expected in at 50.5, similar to last month’s publication, Spain and France conduct bond auctions, whilst Germany’s factory orders are expected to show a rise of 1.1% on the month.
From the UK we’ll receive notification of the BoE MPC policy decision on base rates combined with a policy statement, expected at no change – to be kept at 0.5%. The asset purchase scheme should remain at the £375 bn with no increase required. Shortly after the ECB will announce their base interest rate and provide narrative in a press conference to accompany the decision.
Monthly building permits data for Canada are published, expected to reveal that permits rose by 1.9% for the month. The Ivey PMI for Canada is expected in at 56.7. It’s a leading indicator of economic health – businesses react quickly to market conditions and their purchasing managers hold perhaps the most current and relevant insight into the company’s view of the economy. Survey of about 175 purchasing managers, selected geographically and by sector of activity to match the economy as a whole, which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories.
Challenger jobs cuts in the USA are predicted to print at levels similar to the previous month at 11.5%. Meanwhile unemployment weekly claims in the USA are expected to show that 336K new claims were made during the last week. Factory orders in the USA are expected to have risen to -0.4% for the month.
Various central bank illuminaries will hold court in Thursday; Plosser of the Fed, Murray of the RBC, and governor Stevens of the RBA, whose speech could be highly significant.
