The economic news emerging from the USA was extremely positive on Thursday, not only were the job numbers more encouraging but housing starts have improved. A leading sentiment index also came in more positive than anticipated. However, another metric, that dares not speak its name, rises exponentially day by day; total USA debt..
On Thursday US total debt rose by $32 billion reaching a new record high of $15.392 trillion. However, according to the president’s own budget total US debt is expected to surpass the final debt ceiling of $16.4 trillion in September, or sooner due to the addition of the $160 billion additional debt needed to fund the extension of the Bush perpetual tax cut through 2012. Total debt versus GDP is over 100% bringing into question the use of debt to generate economic growth. The question is what the tax revenue is relative to debt, is America now issuing more debt than it is collecting from tax revenues?
In fiscal 2012, starting October 31 through today, the US has collected $677.6 billion in withholdings taxes, while issuing $601 billion in debt over the same period of time. Tax revenues are running circa 12% above debt issuance. But according to the president’s budget another $1 trillion in debt issuance will come into being over the next seven and a half months, therefore that x and y axis may cross as the USA begins another chapter on it’s voyage and adventure of ‘make it up as you go along’ fiscal and monetary policy..
The number of Americans filing for new unemployment benefits fell to a near four-year low, suggesting the labor market recovery is increasing. Other data on Thursday showed expansion in factory activity in the Mid-Atlantic area this month, whilst builders broke more ground on new residential projects in January. Initial claims for state unemployment benefits dropped 13,000 to a seasonally adjusted 348,000, the lowest level since March 2008, the Labor Department said.
Greece Optimism Rises
Hopes rose on Thursday that Greece has finally secured the second bailout after Athens set out extra budget savings demanded by its international lenders. Time is running out for Greece to seal the 130 billion euro rescue and avoid bankruptcy, Greek officials hope euro zone finance ministers will sign the deal off on Monday, a month before Athens needs the money to repay the 14.5 billion euros of debt repayments due on March 20.
Market Overview
The Standard & Poor’s 500 Index closed near the highest level in three years, as better-than-estimated data on American jobless claims, housing starts and manufacturing bolstered optimism in the economy. The euro rose amid optimism that Greece will finally receive its second bailout.
The S&P 500 advanced 1.1 percent to close at 1,358.04 at 4 p.m. in New York. The Stoxx Europe 600 Index ended little changed after tumbling as much as 1.1 percent. The euro was up 0.6 percent at $1.3141 after dipping below $1.30 earlier for the first time since Jan. 25. Ten-year Treasury yields added five basis points to 1.98 percent.
Commodity Basics
Natural gas rocketed 5.9 percent, leading gains in commodities, after a government report showed a bigger than forecast drop in U.S. inventories. Oil for March delivery gained 51 cents to $102.31 a barrel. Seventeen of the 24 commodities tracked by the S&P GSCI index advanced.
Oil advanced to a six-week high on belief that Greece will get a second bailout and as U.S. jobless claims dropped to the lowest level since 2008. Oil for March delivery gained 51 cents to $102.31 a barrel on the New York Mercantile Exchange, the highest settlement since Jan. 4. Prices have gained 3.5 percent this year. Brent oil for April rose $1.18, or 1 percent, to settle at $120.11 a barrel on the ICE Futures Europe exchange, an eight- month high.
Total fuel demand increased 5.9 percent from a 12-year low to 18.7 million barrels a day last week, the Energy Department reported.
Gold futures rebounded, whilst silver pared losses as the dollar declined versus the euro, increasing demand for the precious metals as alternative investments. Gold futures for April delivery rose 30 cents to close at $1,728.40 an ounce at 2:02 p.m. on the Comex in New York. Earlier, the price fell as much as 1.2 percent.
The metal has gained 10 percent this year. Silver futures for March delivery fell 0.1 percent to $33.37 an ounce on the Comex. Earlier, the price dropped as much as 2.3 percent. The metal climbed 20 percent this year.
On the New York Mercantile Exchange, palladium futures for March delivery climbed 1.9 percent to $696.60 an ounce, ending a five-session slide. Platinum futures for April delivery fell 0.7 percent to $1,626.10 an ounce.
Forex Spot-Lite
The euro rose as a report that the European Central Bank is exchanging Greek bonds for new securities bolstered speculation the nation will get its second bailout. The dollar lost its gains versus the majority of its counterparts after data showed manufacturing in the Philadelphia area expanded by the fastest in four months and initial jobless claims fell to the lowest in four years. The pound rose versus the dollar as consumer confidence improved in January.
The euro rose 0.5 percent to $1.3130 at 5 p.m. in New York after sliding to $1.2974, the lowest level since Jan. 25. The common currency rose 1.1 percent to 103.65 yen after touching 103.84 yen, the highest level since Dec. 12. The dollar appreciated 0.7 percent to 78.94 yen after hitting 78.97 yen, the strongest level since Nov. 1. The Australian dollar rose 0.5 percent to $1.0755.
