Wednesday was a busy day for high impact news events most notably the bullish European Markit Economics PMI surveys published in the morning session. This sense of optimism was continued with the news that the UK’s public sector finances had improved. However, peeling back the layers reveals that the record debt just keeps on rising. At the end of March 2014, Public sector net debt excluding temporary effects of financial interventions (PSND ex) was £1,268.7 billion, equivalent to 75.8% of gross domestic product (GDP). This is a rise of over £550 bn since the UK’s coalition government took power suggesting that any recovery has quite simply come at the expense of increased debt.
The UK’s CBI believes that the recovery in the UK economy has been built on solid foundations according to its latest survey. “Optimism among UK manufacturers sees fastest rise since early 70s” was the headline the CBI led with in its latest survey. The survey of 405 manufacturers found that in the three months to April 2014, growth in total order books and domestic orders was the fastest since 1995.
From North America we learned in the afternoon session that Canada’s retail sales rose by 0.5% in the latest data published. In the USA we learned that new home sales crashed by circa 14.5%, a fall that the economists polled by Reuters and Bloomberg failed to spot. The housing recovery has slowed dramatically as higher borrowing costs and rising prices make properties less affordable, but that didn’t stop the excuse of bad weather early in the year being used as an excuse.
Other news from the USA concerned the highly positive news according to Markit that US production rose at its fastest pace for just over three years in April. At 55.4 in April, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) was down fractionally from 55.5 in March.
Oil slips as U.S. supplies rise more than expected
Oil futures turned a bit lower on Wednesday following weekly data that showed a slightly bigger-than-expected climb in crude supplies. The U.S. Energy Information Administration said crude stockpiles rose 3.5 million barrels for the week ended April 18. Analysts polled by Platts were looking for a climb of 3.1 million barrels. Gasoline supplies fell by 300,000 barrels, while distillate stockpiles rose 600,000 barrels, according to the EIA. Gasoline stockpiles were expected to fall by 1.7 million barrels, while distillates, which include heating oil, were seen down 900,000 barrels, according to the Platts poll.
US production rises at fastest pace for just over three years in April
Manufacturers indicated a strong start to the second quarter of 2014, with the latest survey highlighting expanding levels of production, new work and employment. At 55.4 in April, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) was down fractionally from 55.5 in March but still well above the neutral 50.0 value. Sharper rates of output and new business growth boosted the Manufacturing PMI during April, while the main negative influence on the headline index was a rise in the suppliers’ delivery times’ component. April data pointed to a steep and accelerated expansion of manufacturing output levels.
Canada Retail Trade, February2014
Retail sales rose 0.5% to $41.0 billion in February. Gains were reported in 7 of 11 sub-sectors, representing 56% of total retail sales. Excluding sales at gasoline stations and motor vehicles and parts dealers, sales advanced 0.8%. After removing the effects of price changes, retail sales in volume terms rose 0.1%. Health and personal care stores (+2.6%) recorded the largest advance in dollar terms among all sub-sectors on the strength of higher sales at pharmacies and drug stores and, to a lesser extent, food supplement stores. Retail sales at general merchandise stores grew 1.4%.
New-Home Sales in U.S. Plunge to Eight-Month Low
Sales of new U.S. homes unexpectedly plunged in March to the lowest level in eight months, reflecting a broad-based retreat that signals the industry is facing bigger challenges than just bad weather. Sales dropped 14.5 percent to a 384,000 annualized pace, lower than any forecast of economists surveyed by Bloomberg and the weakest since July, Commerce Department data showed today in Washington. The median forecast of 74 economists surveyed by Bloomberg News called for the pace to accelerate to 450,000. The housing recovery has slowed as higher borrowing costs and rising prices make properties less affordable.
Optimism among UK manufacturers sees fastest rise since early 70s – CBI
Business optimism among manufacturers saw its sharpest improvement since 1973, on the back of strong growth in orders at home and abroad. That’s according to the latest CBI quarterly Industrial Trends Survey. The survey of 405 manufacturers found that in the three months to April 2014, growth in total order books and domestic orders was the fastest since 1995. Export orders grew strongly, while investment intentions for the year ahead remained particularly robust. Output growth was solid again for the second consecutive quarter, while numbers employed rose at the strongest rate since October 2011.
UK Public Sector Finances, March 2014
For the financial year 2013/14 public sector net borrowing excluding the temporary effects of financial interventions, the transfer of the Royal Mail Pension Plan and the transfers from the Bank of England Asset Purchase Facility Fund was £107.7 billion. This was £7.5 billion lower than the same period in 2012/13, when it was £115.1 billion. During the financial year 2013/14, £31.1 billion has been transferred from the Bank of England Asset Purchase Facility Fund to HM Treasury. Of this amount, £12.2 billion has had an impact on net borrowing.
Market overview at 10:00 PM UK time
The DJIA closed down 0.08%, the SPX closed down 0.22% whilst the NASDAQ closed down 0.83%. Euro STOXX closed down 0.74%, CAC down 0.74%, DAX down 0.58% and the UK FTSE down 0.11%.
The DJIA equity index future is up 0.19%, the SPX up 0.24% and the NASDAQ future is up 0.07%. Euro STOXX future is down 0.67%, DAX down 0.53%, CAC down 0.60% and the UK FTSE future is down 0.04%.
NYMEX WTI oil finished the day down 0.22% at $101.53 per barrel, NYMEX nat gas was down 0.15% at $4.73 per therm. COMEX gold was down 0.32% at $1284.40 per ounce with silver up 0.46% at $19.45 per ounce.
Forex focus
Japan’s currency rose 0.2 percent to 102.44 per dollar late afternoon New York time after gaining 0.4 percent, the most since April 10th. The euro advanced 0.1 percent to $1.3817 after rising as much as 0.4 percent to $1.3855. The shared currency fell 0.1 percent to 141.55 yen, snapping a six-day rally. The yen rose the most in almost two weeks versus the dollar as the U.S. and China reported weaker-than-forecast economic data amid increasing tensions in the Ukraine.
The kiwi, as the currency is known, fell 0.2 percent to 85.87 U.S. cent to trim its gain this year to 4.5 percent. The Aussie slid 0.9 percent to 92.83 U.S. cents after dropping 1.1 percent, the biggest decline since March 19th. The Aussie declined to the weakest since April 8th after the statistics bureau said the trimmed mean gauge of consumer prices was 2.6 percent in the first quarter from a year ago.
Bonds briefing
The yield on the current five-year note fell two basis points, or 0.02 percentage point, to 1.72 percent late afternoon in New York. The yield on the benchmark 10-year note declined two basis points to 2.69 percent.
The five-year securities yielded 1.732 percent at auction, the highest since May 2011, and compared with a forecast of 1.723 percent in a Bloomberg News survey of seven of the Federal Reserve’s primary dealers. The bid-to-cover ratio, which measures the amount of demand at the auction relative to the size of the offering, was 2.79 times compared with an average of 2.62 at the 10 previous sales.
Treasuries rose as a weaker-than-forecast housing report and the simmering conflict between Russia and Ukraine led investors to seek a haven in government securities.
Fundamental policy decisions and high impact news events for April 24th
Thursday sees the business climate reading from the IFO for Germany expected to come in at 110.5. The ECB president Mario Draghi will deliver a speech, whilst Spain will launch a ten year bond debt auction. In the UK the CBI will publish its realised sales expectations, predicted to come in at 18. From the USA we’ll receive core durable goods orders expected to come in at 0.6% up. Unemployment claims are expected in at 309K for the past week. Durable goods orders are anticipated to come in at 2.1% up.
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