In a busy afternoon for policy decisions, commentary and high impact news event, it was the two heads of both the Federal Reserve and the ECB who took centre stage..
Janet Yellen appeared to commit to further monetary easing tapering, although rather wisely she’s been hedging her bets by suggesting that she’ll need to look more deeply into the weather related impact on the USA economy. Further she appears deeply concerned with regards to the overall levels of unemployment in the USA and isn’t being fooled by the standard measurement. Instead she appears to be suggesting that U6 should be the real measurement from here on in.
Whilst on the subject of unemployment data another Thursday arrives and another poor print comes our way courtesy of the BLS and their weekly unemployment claims numbers for the USA. Unemployment claims rose by 14,000 over the past week to 348K, whilst the four week average remained static.
Looking at durable goods orders in the USA they fell by 1% last month, beating expectations of a 1.7% drop. However, the previous month’s figure was disastrous, but appeared to be brushed under the carpet when analysts and commentators discussed it in the mainstream financial press on Thursday. The slump in December was a jaw dropping 5.3% but contained within the detail of the print was some encouraging detail which overall optimism resulted in the SPX closing at a record high of 1854.
Finally we come on to Mario Draghi’s speech on Thursday in which he appeared to suggest that the worse of the EU crisis is now over and the challenge now is to rebuild. However, a jobless recovery won’t repair the social damage which has created a wasteland of opportunity in many of the PIIGS. How Draghi and the ECB repair that damage without resorting to versions of quantitative easing really is the trillion dollar question…
Draghi: The path to recovery and the ECB’s role
[quote]Ladies and Gentlemen, It is a great pleasure to speak to you tonight. When I last spoke at an event organised by the Bundesbank, in March 2012, the euro area stood at a crossroads. One direction pointed to continued malaise, with various vulnerabilities threatening to undo the benefits of economic, financial and even monetary integration. The other direction pointed to gradual repair, with ambitious reform efforts removing the key obstacles to economic stability and growth. The euro area has chosen the latter path. And today, we are seeing first signs that this decision is paying off…[/quote]
Yellen Repeats Fed Likely to Keep Trimming Asset Purchases
Federal Reserve Chair Janet Yellen said the central bank is likely to keep trimming asset purchases, even as policy makers monitor data to determine if recent weakness in the economy is temporary. she said in response to a question today from the Senate Banking Committee.
[quote]Unseasonably cold weather has played some role. What we need to do, and will be doing in the weeks ahead, is to try to get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to softer outlook.[/quote]
US unemployment insurance weekly claims report
In the week ending February 22, the advance figure for seasonally adjusted initial claims was 348,000, an increase of 14,000 from the previous week’s revised figure of 334,000. The 4-week moving average was 338,250, unchanged from the previous week’s revised average. The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending February 15, unchanged from the prior week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending February 15 was 2,964,000, an increase of 8,000 from the preceding week’s revised level of 2,956,000.
Orders for Durable Goods in U.S. Decrease Less Than Forecast
Orders for U.S. durable goods fell less than forecast in January, a sign manufacturing was beginning to emerge from the harsh winter weather that blanketed the nation. The 1 percent decrease in bookings for goods meant to last at least three years followed a revised 5.3 percent slump in December that was larger than previously estimated, data from the Commerce Department showed today. The median estimate in a Bloomberg survey called for a 1.7 percent decline. Orders for non-military capital goods excluding aircraft, a proxy for future business investment, improved.
Market snapshot at 10:30 PM UK time
The DJIA closed up 0.46%, the SPX closed up at a record high of 1854 up 0.49%. The NASDAQ closed up 0.63%. Euro STOXX closed down 0.42%, CAC was flat, DAX down 0.76%, FTSE up 0.10%.
The DJIA equity index future is up 0.56%, SPX up 0.67%, NASDAQ future up 0.82%. Euro STOXX future is down 0.44%, DAX future down 0.78%, CAC up 0.11% and the UK FTSE 100 future is up 0.15%.
NYMEX WTI oil finished the day down 0.31% at $102.27 per barrel, NYMEX nat gas down 1.50% at $4.47 per therm. COMEX gold finished the day up 0.25% at $1331.30 per ounce, with silver up 0.05% at $21.30 per ounce.
Forex focus
The yen strengthened 0.3 percent to 102.10 per dollar mid-afternoon New York time, rising the most on a closing basis since Feb. 3rd. The Japanese currency added 0.1 percent to 139.97 per euro, having rallied as much as 0.9 percent earlier. The euro climbed 0.2 percent to $1.3709, after falling as much as 0.3 percent. The Swiss franc appreciated as much as 0.3 percent to 1.21572 per euro, touching the strongest level since April 18th.
The yen climbed the most in three weeks against the dollar as reports that Russian President Vladimir Putin put fighter jets on combat alert amid rising tensions in Ukraine boosted demand for less-risky assets.
The pound traded at $1.6681, from $1.6671 yesterday. Sterling was at 82.19 pence per euro after appreciating to 81.98 pence, the strongest level since Feb. 18th. The U.K. currency has gained 13 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes as a strengthening economy fueled speculation the Bank of England would raise borrowing costs sooner than it forecast. The euro appreciated 6.2 percent and the dollar rose 1.3 percent.
Bonds briefing
The benchmark 10-year UK debt gilt yield fell five basis points, or 0.05 percentage point, to 2.67 percent late London time, the biggest drop since Jan. 23rd. The rate slid to 2.64 percent, the lowest since Feb. 5th The 2.25 percent bond maturing in September 2023 rose 0.445, or 4.45 pounds per 1,000-pound ($1,665) face amount, to 96.485. U.K. government bonds rose, with 10-year yields falling the most in five weeks, as deepening tensions in Ukraine and reports of Russian fighter planes being put on combat alert boosted demand for haven assets.
German 10-year bund yields fell six basis points to 1.56 percent after touching 1.55 percent, the lowest since July 24th.
Ten-year USA debt yields fell two basis points, or 0.02 percentage points, to 2.64 percent late New York time. They reached 2.63 percent, the lowest since Feb. 7th. The price of the benchmark 2.75 percent security due in February 2024 gained 6/32, or $1.88 per $1,000 face amount, to 100 29/32. Treasury 10-year note yields touched the lowest level in almost three weeks as political turmoil in Ukraine boosted demand for safety and investors weighed prospects for the U.S. economy.
Fundamental policy decisions and high impact news events for February 28th that may affect sentiment
Friday the ANZ business confidence index is published expected in similar to previously at 61.1. Private sector debt data from Australia is published, expected in at 0.5% up for the month. Housing starts in Japan are expected to show a 15.3% rise.
German retail sales are expected in up 1.2%, French consumer spending is expected to have fallen by 0.8%, Italy’s unemployment rate is expected in at 12.7%, quarterly rate at 12.4%. Italy’s preliminary CPI month on month is expected in at 0.5%.
Flash estimate for European inflation is expected to come in at 0.7%, with unemployment in the region expected in at 12%.
FOMC member Fisher will be speaking, Canada’s GDP will be published, expected in at -0.2%, preliminary GDP for the USA will be published, expected to come in at 2.6%. Chicago PMI is expected in at 57.9. Revised university of Michigan sentiment is expected to come in at 81.4, pending home sales in the USA are expected in up 2.9%. FOMC Member Kocherlakota Speaks, FOMC Member Stein Speaks, BOE Gov Carney Speaks.
