USA markets slumped on Monday as the dollar fell to its lowest level in three weeks versus many of its major peers. The reason for the selloff is that analysts are expecting retail sales for the USA to be disappointing when they’re printed today, Tuesday January 14th. The knock on effect is that (as a consequence of poor retail data) twinned with an appalling NFP print last Friday, analysts expect any taper of the current QE3 programme by the Fed to be delayed. Previously a reduction of monetary easing would have caused a sell off, given that equities would have their main pillar of support removed. However, the overall concern now appears to be that the USA recovery is not built on the solid foundations as first thought.
There may also be concern as reporting season begins in the USA that many of the major USA companies are not as profitable as thought and on closer inspection the rise in equity markets to recent record highs has masked many of the fundamental flaws in the economic recovery.
Despite the selloff there was extremely positive data published on Monday concerning the USA govt. balance of payments surplus which was a record December print at $53.2 billion due to strong govt. mortgage returns from the lenders Fannie Mae and Freddy Mac and falling unemployment payments as claimants simply fall off the grid.
In Canada the latest BOC survey wasn’t encouraging, many companies surveyed are still reporting slower or negative sales over the past 12 months.
Turning our attention to Europe the main data published regarding the German economy was extremely bullish despite only registering as a low to medium impact news event. German machine orders rose by 7% versus a -10% fall in the previous month. The increase suggests that German manufacturers are re-tooling ready for increased manufacturing orders and activity.
Finally we received data regarding New Zealand’s economy in the form of a survey and it couldn’t be better, businesses are apparently more optimistic than at any time in the past twenty years.
Stronger growth likely – Quarterly Survey of Business Opinion, January 2014
Economic activity accelerated in the second half of 2013, according to the NZIER’s December 2013 quarter Quarterly Survey of Business Opinion (QSBO).
[quote]Businesses are the most optimistic they’ve been for 20 years and economic activity is strong. Optimism and activity are being realised into better profits, higher investment and more jobs.[/quote]
said Shamubeel Eaqub, Principal Economist at NZIER. In December 2013, businesses were the most optimistic since June 1994 (52% from 33% in September). Domestic trading activity strengthened to the highest level since March 2005.
U.S. Posts Record December Surplus on Fannie Mae Payments
The U.S. posted a record December budget surplus as higher payroll taxes, payments from Fannie Mae and Freddie Mac, and a declining unemployment rate improved the government’s finances. Revenue exceeded spending by $53.2 billion in December 2013, compared with a $1.19 billion deficit in December 2012, the Treasury Department said in Washington on Monday. The median estimate in a survey of 29 economists was for a $44 billion surplus.
BOC Business Outlook Survey
The winter Business Outlook Survey provides some positive signs for the economic outlook, notably for exports and investment, although responses do not yet appear to suggest a significant strengthening. For many businesses, weak demand and domestic uncertainty continue to temper sales expectations and expansion plans. The balance of opinion on past sales increased but remains just below zero, as many firms continued to report slower or negative sales growth over the past 12 months.
November 2013 German machine orders +7.0% vs -10.0% prior
In November 2013, German machinery and tool orders were up seven percent in real terms against last year’s result. Domestic business dropped by one percent, international business rose by twelve percent, the German Engineering Association (VDMA) reported on Monday in Frankfurt. According to the less volatile three-month comparison, September to November 2013, incoming orders fell by three percent on a year earlier. Domestic orders increased by five percent while foreign orders dropped by seven percent.
Market overview at 10:45 January 13th
The DJIA fell by 1.09% on Monday, the SPX closed down 1.26% and the NASDAQ down 1.47%. The euro STOXX closed up 0.25%, the CAC up 0.30%, DAX up 0.39% and the UK FTSE up 0.26%.
Looking towards market openings on Tuesday euro STOXX future is (at the time of writing) up 0.23%, DAX future is up 0.34%, CAC future up 0.27% and the UK FTSE future is up 0.18%. The DJIA equity index future is down 1.02%, SPX future down 1.23% and the NASDAQ future is down 1.43%.
NYMEX WTI oil sold off in Monday’s sessions, finishing down on the day by 1.25% at $91.56 per barrel. NYMEX nat gas exploded to the upside due to storage issues, closing up 6.14% on the day at $4.30 per therm. COMEX gold closed the day up 0.47% at $1252.70 per ounce with silver up 0.92% at $20.41 per ounce.
Forex focus
The dollar slumped by 1.1 percent to 103 yen late in New York time Monday after falling to 102.86, the weakest level seen since Dec. 18th. It was little changed at $1.3671 per euro, having depreciated 0.6 percent last week. Japan’s currency climbed 1.1 percent to 140.81 per euro after touching 140.50, the strongest level since Dec. 6th.
Australia’s dollar rose 0.7 percent to 90.54 U.S. cents after advancing to 90.86 cents, the highest since Dec. 11th.
The dollar slid to a three-week low versus yen before data today which economists believe will show U.S. retail-sales growth has slowed, strengthening the case versus faster tapering by the Federal Reserve. The Dollar Spot Index, tracking the U.S. currency versus 10 of its major counterparts, fell by 0.3 percent to 1,021.18 after decreasing 0.4 percent on Jan. 10th, the steepest drop since Oct. 22nd.
The pound weakened 0.4 percent to 83.31 pence per euro late London time. The three days of declines in sterling is now the longest losing streak since Dec. 17th. Sterling fell 0.6 percent to $1.6379 after rising to $1.6603 on Jan. 2nd, the highest since August 2011, and weakened 1.4 percent to 169.24 yen, the steepest drop since Aug. 27th. The difference in the number of wagers by hedge funds and other large speculators on an advance in the pound compared with those on a drop (net longs) was 18,178 on Jan. 7th, compared with net longs of 22,781 a week earlier.
Bonds
Benchmark UK 10-year gilt yields fell four basis points, or 0.04 percentage point, to 2.83 percent, the lowest since Dec. 3rd. The 2.25 percent bond due in September 2023 gained 0.355, or 3.55 pounds per 1,000-pound face amount, to 95.14.
Benchmark USA 10-year note yields declined by three basis points, or 0.03 percentage point, to 2.83 percent late afternoon New York time. The price of the 2.75 percent note due in November 2023 was at 99 11/32. The yield touched 2.82 percent, the least since Dec. 11th. Treasuries rose, with 10-year note yields reaching the lowest level in a month, before reports this week that economists said will show U.S. retail-sales growth slowed and inflation was stable. The yield difference between two- and 10-year notes narrowed to the least since November as investors scaled back economic-growth assumptions.
Fundamental policy decisions and other high impact news events for January 14th
Tuesday reveals Germany’s wholesale inflation growth, expected in at 0.4%, whilst France’s consumer inflation is expected to come in at 0.4% month on month. In the UK CPI is expected to print at 2.1%, with RPI at 2.7%.
Industrial production numbers for Europe are published; the anticipation is for a print of 1.6% positive, an improvement of the negative 1.1% print of the previous month.
In the USA the NFIB business survey results will be published, expected in at 93.2. The retail sales figure for the USA is published, expected in up 0.2% with core retail sales up by 0.4%. Import prices are expected to have risen by 0.3%, with business inventories expected to have risen by 0.4% month on month. The USA’s high impact news and policy events concludes with the FOMC members Plosser and Fisher speaking, naturally the subject of reining in the USA markets’ addiction to quantitative easing/asset purchase schemes will be closely listened for amongst the subjects analysts will be expecting to be discussed.
Late evening we receive data regarding Australia’s car sales, the previous months’ data revealed an increase of 1.8% month on month. Foreign direct investment for China was up 5.5% in the previous month with the anticipation that this figure will be met again. Japan’s 30 yr bond auction is expected to see a rate at 1.7% with a bid to cover ratio of 4.2.
