It’s becoming increasingly tricky to know how to fairly and dispassionately judge the various sentiment surveys from Markit economics. On Monday they suggested that the UK’s manufacturing orders have reached a 19 year high and that the manufacturers in the UK are employing an extra 5,000 each month. As a consequence analysts in the UK became ‘all giddy’, believing that unemployment will fall below 7% in 2015. And then another survey arrives, of a far more relevant and practical nature, blowing a hole through Markit’s optimism; revealing that British workers have taken a £5,000 pay cut over past five years…
Manufacturing in the UK, when measured in historical terms, is now a relatively small part of the UK economy, circa 10%. Therefore a rise in employment in manufacturing and a rise in the overall wider industry won’t make much of a dent in the UK’s GDP. But in an economy 70% reliant on consumers, if those consumers have less to spend, then as sure as night follows day, those tills won’t ring with sales and the economy will remain stagnant. Now various economists and analysts can continue with their optimism, but it’s imperative that they (and us as analysts) don’t get too carried away with sentiment surveys.
UK wage earners lose £5,000 in pay cuts over the past five years
As the debate over the rising cost of living promises to become one of the major battle grounds in the run up to the 2015 election in the UK, the Office for National Statistics has published data on Monday revealing that British wage-earners have suffered a £5,000 pay cut over the past five years.
The figures, published by the Office for National Statistics on Monday, show wages and salaries for the middle fifth of non-retired households fell from £33,100 in 2007-08 to £28,300 in 2011-12. Over the same period original income (which is the income households get from employment and investments) fell from £37,900 to £32,600, while cash benefits rose from £3,100 to £4,600.
The figures also reveal that, despite the big rise in personal allowances due to budget decisions by the Coalition, median household income for the overall population has fallen by 3.8%, after adjusting for inflation, since the start of the downturn.
US CFTC: Speculators clip to EUR short positions whilst adding to extended JPY shorts
Speculative accounts flipped to a net euro short position and added to their already extended net yen short position as of Nov. 26, according to U.S. Commodity Futures Trading Commission data released Monday.
The CFTC’s Commitments of Traders report showed speculators had a net euro short position of -431 contracts as of Nov. 26th, which compared to the prior week’s net euro long of +8,911 and the net long of +70,617 contracts, seen Oct. 29, which was the largest since May 3, 2011 (+99,516 contracts). This is the first net euro short position since July 30, 2013.
The latest position also compared to the record net euro long of +119,538 contracts seen May 15, 2007 and the record net euro short of -214,418 contracts, seen June 5th, 2012.
Speculative accounts had a net yen short of -123,202 contracts as of Nov. 26, which compared to the prior week’s net yen short of -112,216, which was the first time that net yen shorts have been larger than 100,000 contracts since July 2007.
The record net yen short of -188,077 contracts was seen June 26, 2007 and the record net yen long of +65,920 contracts seen March 25, 2008.
Nobel Prize winner Robert Shiller warns of US equities bubble
Robert Shiller, a winner of the 2013 Nobel Prize for economics, has warned about a potential bubble in US stock markets. He told Germany’s Der Spiegel magazine:
[quote]I’m not sounding the alarm yet. But in many countries the stock price levels are high, and in many real estate markets prices have risen sharply, that could end badly. I find the boom in the US stock market most concerning. The world is still very vulnerable to bubbles. The world’s largest economy remains weak and vulnerable.[/quote]
Fitch Affirms Greece at ‘B-‘; Outlook Stable
Fitch Ratings has affirmed Greece’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘B-‘. The issue ratings on Greece’s senior unsecured foreign and local currency bonds have also been affirmed at ‘B-‘. The Outlooks on the Long-term IDRs are Stable. The Short-term foreign currency IDR has been affirmed at ‘B’ and the Country Ceiling upgraded to ‘B+’ from ‘B’. The affirmation and Stable Outlooks reflect the following factors: Greece is on course to eliminate longstanding macroeconomic imbalances.
November 2013 Manufacturing ISM Report on Business
Economic activity in the manufacturing sector expanded in November for the sixth consecutive month, and the overall economy grew for the 54th 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 PMI registered 57.3 percent, an increase of 0.9 percentage point from October’s reading of 56.4 percent. The PMI has increased progressively each month since June.
US PMI jumps to highest reading since January
PMI rebounds to ten-month high, signalling solid improvement in business conditions – Output and new order growth accelerates sharply – Rate of job creation slows Summary The final Markit U.S. Manufacturing Purchasing Managers’ Index (PMI) 1 registered 54.7 in November, signalling the strongest improvement in manufacturing business conditions since January. The headline index was up sharply from 51.8 in October (a one-year low) and above the earlier flash estimate of 54.3. The three-month average of the PMI, an indication of underlying trends, was 53.1.
Markit/CIPS UK Manufacturing PMI
November saw the already solid upturn in the UK manufacturing sector gain further momentum. At 58.4, from an upwardly revised reading of 56.5 in October, the seasonally adjusted Markit/CIPS Purchasing Manager’s Index (PMI) rose to its highest level since February 2011. Moreover, the PMI has signalled expansion for eight months running. The improved performance of the sector largely reflected substantial increases in both manufacturing production and new orders, with rates of growth in both at, or near to, 19-year highs.
Market overview
The DJIA failed to react positively to the positive reports emanating from the USA, the DJIA closed down, just above the critical psyche level of 16,000 at 16008. The loss on the day was 0.48%. The SPX closed down 0.27%, just above the critical level of 1800, whilst the NASDAQ closed down 0.36%. European markets also closed down in Monday’s trading sessions; STOXX down 0.30%, CAC down 0.22%, DAX down 0.04%, the UK FTSE sold of sharply down 0.83%.
Looking towards the opening on Tuesday the DJIA equity index future is down 0.42%, SPX future down 0.24%, NASDAQ down 0.13%. STOXX future is down 0.23%, DAX down 0.04%, CAC down 0.21% and UK FTSE future down 0.86%.
NYMEX WTI oil rebounded healthily on Monday, closing up 1.25%, NYMEX nat gas closed up 0.53%, COMEX gold sold off sharply by 2.50% to close the day off at $1219.20 per ounce, with COMEX silver down a substantial 4.31% at $19.-7 per ounce.
Forex focus
The yen fell 0.5 percent to 102.94 per dollar late in New York time, touching the least since May 23rd. Japan’s currency fell 0.1 percent to 139.40 per euro after depreciating to 139.71 on Nov. 29th, the weakest level since October 2008. The euro dropped 0.4 percent to $1.3542.
The yen fell to a six-month low versus the dollar after reports showed manufacturing in China, Europe and the U.K. expanded last month, driving demand for risk and underscoring Japan’s currency’s role in the carry trade.
Australia’s dollar was little changed after rallying from almost its weakest level in three months and New Zealand’s currency rose for a second day. The Reserve Bank of Australia meets overnight Monday/Tuesday, analysts predict policy makers will keep interest rates unchanged at 2.5 percent. The Aussie rose as much as 0.7 percent versus the greenback after falling as low as 90.56 on Nov. 29th, the least since Sept. 4th. New Zealand’s currency climbed 0.8 percent to 81.86 U.S. cents.
The pound climbed 0.3 percent to 82.79 pence per euro after appreciating to 82.53, the strongest since Jan. 11th. The pound has jumped 7.5 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indices due to speculation that a strengthening economy will prompt the Bank of England to increase borrowing costs. The euro has appreciated 4 percent, while the dollar is little changed.
The loonie, as the Canadian dollar is known, fell 0.3 percent to C$1.0644 per U.S. dollar late in Toronto. It touched C$1.0654 per U.S. dollar, the lowest since October 2011. One loonie buys 93.95 U.S. cents. The Canadian dollar fell to the lowest level in two years as weak exports added to concern expressed by Bank of Canada policy makers that a projected driver of economic growth has not yet materialized.
Bonds
Germany’s 10-year yield rose five basis points, or 0.05 percentage point, to 1.74 percent late London time, the biggest increase since Nov. 8th. The 2 percent bond maturing in August 2023 declined 0.42, or 4.20 euros per 1,000-euro ($1,354) face amount, to 102.30. Volatility on German bonds was the highest in euro-area markets on Monday, followed by those of Austria and Portugal, according to measures of 10-year debt, the yield spread between two and 10 year securities and credit-default swaps.
Fundamental policy decisions and high impact news event that could affect market sentiment on December 3rd
Tuesday sees the publication of several key economic data, including Spanish unemployment data expected in at 44.3K below the 88K the previous month. In the UK the Halifax house price ides is expected to rise by 0.8% month on month, whilst the construction PMI is expected in at 59.3. Total vehicle sales in the USA might give an indication of the overall consumer sentiment and the existing appetite for new credit. Australia’s GDP is expected in at 0.7% up from 0.6% the previous month.
