USA industrial production is expected in at 0.4% month on month. Retail sales for the UK are expected to come in at 0.5%

Jan 17 • Morning Roll Call • 1539 Views • Comments Off on USA industrial production is expected in at 0.4% month on month. Retail sales for the UK are expected to come in at 0.5%

shutterstock_130207448A very interesting study, regarding the state of many European banks, was published across several of the wires during Thursday. Reuters were citing academic research from Berlin suggesting that, in order to survive the upcoming stress tests the ECB will subject banks to, the banks might need up to one trillion USD in order to patch up their balance sheet ‘gaps’.

Now the fascinating aspect regarding this revelation is that this funding can’t really come from the ECB simply doling out more liquidity and stiffing the bill onto taxpayers. The banks will have to raise it through programmes such as; bail-ins, rights issues, or simply ‘tapping up’ current shareholders to plug the gaps to satisfy the stress tests. This story could run and run and if we’re looking for the direction that the next European crisis might come from, this may be it.

In the USA builder confidence fell by a tick, but at a reading of 57 the index is still expanding versus contracting. Whilst the Philly Fed index made a significant move north to print at 9.4 in January, from 6.4 in December.

USA weekly unemployment claims were published on Thursday showing only a marginal fall of circa 2,000 less claims from the previous week. The rolling unemployment increase was 174,000 from the preceding week’s revised level of 2,856,000. The 4-week moving average was 2,908,750, an increase of 38,250 from the preceding week’s revised average of 2,870,500.

Euro zone banking stress test could show $1 trillion hole in banks

An stress test of the euro zone’s biggest banks could reveal a capital shortfall of more than 770 billion euros ($1 trillion) and trigger further public bailouts, a study by an advisor to the EU’s financial risk watchdog and a Berlin academic has found. The study and others published ahead of the EU stress tests, whose results are due in November, are important because they set the expectations against which markets will judge the credibility of the European Central Bank’s attempt to prove its banks can withstand another crisis without taxpayer help.

Builder Confidence Slips One Notch in January

Builder confidence in the market for newly built, single-family homes fell one point to 56 in January from a revised December reading of 57 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.

NAHB Chairman Rick Judson, a home builder from Charlotte, N.C.;

Following an unexpected jump last month, builder confidence has essentially leveled out and is holding at a solid level. Many markets continue to improve and this bodes well for future home sales.

NAHB Chief Economist David Crowe;

Rising home prices, historically low mortgage rates and significant pent-up demand will drive a continuing, gradual recovery in the year ahead. However, the pace of the recovery could be stronger were it not for rising construction costs and inaccurate appraisals that are keeping some home sales from going through.

Derived from a monthly survey that NAHB has been conducting for 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

Philly Fed January 2014 Business Outlook Survey

Manufacturing growth in the region continued in January, according to firms responding to this month’s Business Outlook Survey. The survey’s broadest indicators for general activity, new orders, shipments, and employment were positive, signifying continued moderate growth. The survey’s indicators of future activity moderated but continue to suggest general optimism about growth over the next six months. Indicators Suggest Continued Moderate Growth The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a revised reading of 6.4 in December to 9.4 this month. The index has now been positive for eight consecutive months.

US Unemployment Insurance Weekly Claims Report

In the week ending January 11, the advance figure for seasonally adjusted initial claims was 326,000, a decrease of 2,000 from the previous week’s revised figure of 328,000. The 4-week moving average was 335,000, a decrease of 13,500 from the previous week’s revised average of 348,500. The advance seasonally adjusted insured unemployment rate was 2.3 percent for the week ending January 4, an increase of 0.1 percentage point from the prior week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending January 4 was 3,030,000, an increase of 174,000.

US Consumer Price Index – December 2013

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in December on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.5 percent before seasonal adjustment. Advances in energy and shelter indexes were major factors in the increase in the seasonally adjusted all items index. The gasoline index rose 3.1 percent, and the fuel oil and electricity indexes also increased, resulting in a 2.1 percent increase in the energy index.

Market overview at 10:00 PM UK time

The DJIA equity index closed down 0.39% at 16417, the SPX closed down 0.13% whilst the NASDAQ closed up 0.09%. The European markets sold off some of the significant gains witnessed yesterday; euro STOXX down 0.59%, CAC down 0.30%, DAX down 0.17% with the UK FTSE 100 down 0.07%.

Looking towards market openings on Friday January 17th the DJIA equity index future is down 0.39%, the SPX future is down 0.13% and the NASDAQ future is up 0.09%. The euro STOXX equity index future is down 0.59%, the CAC future is down 0.30%, DAX future down 0.17% and the UK FTSE future is down 0.07%.

NYMEX WTI oil finished the day down 0.05% at $94.12 per barrel, with NYMEX nat gas up 1.09% on the day at $4.37 per therm. Gold on COMEX finished the day up 0.30% at $1242 per ounce with silver on COMEX at $20.20 down 0.19%.

Forex focus

The Dollar Spot Index, which measures the USD currency versus its 10 major counterparts, was little changed at 1,029.77 mid-afternoon New York time after advancing to 1,032.01, the highest since Sept. 9th.

The dollar dropped 0.3 percent to 104.28 yen after rising 1.5 percent in the previous two sessions. It traded at $1.3612 per euro. The 18-nation currency dropped 0.2 percent to 141.94 yen. The dollar touched a four-month high as initial-jobless claims fell last week, a sign the labor market may be recovering.

Australia’s dollar slid 1.1 percent to 88.17 U.S. cents after falling to 87.77, the weakest since August 2010. The Aussie dropped 1.3 percent to NZ$1.0554 after trading at NZ$1.0543, the lowest since December 2005.

The pound fell 0.2 percent to $1.6340 late afternoon London time after dropping to $1.6315, the lowest level since Dec. 25th. The U.K. currency weakened 0.2 percent to 83.24 pence per euro after depreciating to 83.49 pence on Jan. 13th, the weakest level since Jan. 1st. The pound fell to a three-week low versus the dollar after a gauge of U.K. house prices declined in December, fuelling speculation the economic recovery is losing momentum.

Bond briefing

The UK 10-year gilt yield dropped five basis points, or 0.05 percentage point, to 2.81 percent, the lowest level since Dec. 3rd. The 2.25 percent bond due September 2023 gained 0.44, or 4.40 pounds per 1,000-pound face amount, to 95.305.

The USA 10-year yield fell five basis points, or 0.05 percentage point, to 2.84 percent mid-afternoon New York time. The 2.75 percent note due in November 2023 rose 13/32, or $4.06 per $1,000 face amount, to 99 6/32. The yield reached 2.82 on Jan. 13th, the least since Dec. 11th. Treasuries rose after government reports showed an increase in continuing unemployment claims and inflation that remains below the Federal Reserve’s target as the central bank begins cuts to its unprecedented debt purchases.

Fundamental policy decisions and high impact news events that could affect market sentiment on Friday January 17th

Friday we witness the publication of the consumer confidence survey for Japan, expected to reveal a figure of 43.4, up slightly from the previous month’s figure of 42.5. France’s yearly budget balance is published, expected down at €86 billion. Germany’s constitutional court will give its ruling regarding what it perceives to be the legality of the ECB OMT programme. Retail sales for the UK is expected to come in at 0.5% up on the month, concluding the major high impact news for Europe during the week.

In the USA housing starts and building permits are revealed, permits expected in at an annual rate of 1.01 million with starts at 0.99 million. USA industrial production is expected in at 0.4% month on month. The preliminary University of Michigan print is expected to come in at 83.4 just above the previous month’s print of 82.5. Finally JOLTS job openings are expected in at 3.97 million.
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