USA markets experience moderate sell off due to poor data prints as gold futures experienced a temporary flash crash

Jan 7 • Morning Roll Call • 1538 Views • Comments Off on USA markets experience moderate sell off due to poor data prints as gold futures experienced a temporary flash crash

shutterstock_129405830Two economic indices for the USA came in below expectations leading to a muted session on Wall St. with the main indices selling off moderately. The ISM non-manufacturing print came in at 53, whilst the Markit services PMI came in at 55.7. These poor prints also partly led to a selloff in the USD for the first time in several continuous trading sessions.

Whilst on the subject of currencies hedge funds and other large speculators trimmed their bets that the yen will weaken from almost a seven-year high, according to data from the Commodity Futures Trading Commission published last Friday. The difference in the number of wagers on a decline in the currency compared with those on a gain (net shorts) was 135,228 as of Dec. 31st, compared with 143,822 a week earlier that was the most since July 2007.

Despite the optimistic PMI prints for Europe the markets weren’t convinced with regards to the European economy’s strength therefore mainly indices closed down on the day. A surprise came in the form of the UK services PMI courtesy of Markit which printed below expectations. Also word is beginning to filter into the markets that the UK’s retail sector, an incredibly important growth area for the UK economy, may have fallen in the month of December, estimates are suggesting a fall year on year of up to 2.2% on the high street, with internet sales not picking up the slack and gap.

In a move that left investors and analysts scratching their collective heads Gold futures plunged more than $30 early on Monday morning USA time, before then quickly regaining nearly all of the drop within the same minute. The swift move caused an automatic ten second delay in trading with many market participants said a single trading error was probably to blame. Small comfort to those caught the wrong side of the move and stopped out through what could be an error not of their making.

December 2013 US Non-Manufacturing ISM Report On Business

Economic activity in the non-manufacturing sector grew in December for the 48th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business. The report was issued today by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management Non-Manufacturing Business Survey Committee. The NMI registered 53 percent in December, 0.9 percentage point lower than November’s reading of 53.9 percent. This indicates continued growth at a slightly slower rate in the non-manufacturing sector.

US new order growth across manufacturing and services fastest since April 2012

Activity at service providers in the U.S. continued to rise at a solid pace in December. This was signalled by the final Markit U.S. Services PMI Business Activity Index1 posting 55.7, down slightly from November’s 55.9 and below the earlier flash reading of 56.0. The services reading nudged the Markit U.S. Composite PMI Output Index (covering manufacturing and services) down slightly to 56.1 in December, from 56.2 in November. Nevertheless, the index signalled a solid increase in activity across the manufacturing and service sectors combined.

Britain’s bosses are more confident about the economy than a year ago, according to a survey from the Institute of Directors

87% of IoD members expect UK GDP growth to be higher in 2014 than in 2013, and many also expect higher revenues and profitability this year within their own firms:

Our survey is another sign that the economy is indeed recovering. While the view of the IoD is that economic expansion remains too dependent upon consumer spending, funded in large part by a shrinkage in the savings rate, the fact that 74 per cent of businesses are anticipating higher revenue does point to a welcome broadening of economic growth.

Market overview

The DJIA closed down 0.27% on Monday, the SPX down 0.25% with the NASDAQ down 0.44%. In Europe the STOXX closed down 0.17%, CAC down 0.47%, DAX down 0.08% and the UK FTSE closed flat.

Looking towards Tuesday’s open the DJIA equity index future is (at the time of writing – 10:30 PM UK time Monday January 6th), down 0.26%, SPX down 0.32% and the NASDAQ future is down 0.45% European index futures are also down: STOXX down 0.20%, DAX down 0.06%, CAC down 0.44%, whilst the UK FTSE future is up 0.07%.

Commodities experienced mixed fortunes during Monday’s trading sessions; NYMEX WTI oil was down 0.31% on the day at $93.67 per barrel, with NYMEX nat gas up 0.02% at $4.30 per therm. COMEX gold was down 0.10% on the day at $1237.30 per ounce with silver on COMEX down 0.18% at $20.18 per ounce.

Forex focus

The Dollar Spot Index, which tracking the currency versus its 10 major peers, dropped 0.2 percent to 1,023.89 late in New York after climbing to 1,029.67 on Jan. 2nd, the highest since Sept. 9th. It completed a six-day rally on Nov. 1st.

The dollar fell 0.3 percent to 1.3633 per euro after rising to $1.3572, the highest level since Dec. 5th. The greenback slid 0.6 percent to 104.20 yen, while the Japanese currency advanced 0.3 percent to 142.05 per euro.

The dollar fell for the first time in five days, ending its longest rally in two months, after the reports showed services unexpectedly declined in December. The euro climbed from a one-month low versus the dollar as industry data confirmed the region’s services output expanded for a fifth month before the European Central Bank discusses interest rates on Jan. 9th.

The pound weakened 0.5 percent to 83.13 pence per euro late in London time, the biggest decline since Dec. 11th. It appreciated to 82.71 pence on Jan. 2nd, the strongest since Dec. 3rd. The U.K. currency was little changed at $1.6414. The pound dropped the most in three weeks against the euro after an industry report showed growth in U.K. services unexpectedly slowed in December, damping demand for Britain’s currency.

Bonds

The yield on the benchmark 10-year gilt dropped six basis points on Monday, or 0.06 percentage point, to 2.97 percent, the biggest decline since Oct. 30th. The 2.25 percent bond maturing in September 2023 rose 0.445, or 4.45 pounds per 1,000-pound face amount, to 93.995.

U.K. bonds lost 2.4 percent in the 12 months through Jan. 3rd. German securities fell 1.2 percent and USA Treasuries declined 2.6 percent.

The benchmark 10-year yield fell four basis points, or 0.04 percentage point, to 2.96 percent late in New York. The 2.75 percent note maturing in November 2023 rose 10/32, or $3.13 per $1,000 face amount, to 98 7/32. The yield climbed to 3.05 percent on Jan. 2, the highest level since July 8th, 2011. Treasuries rose as an unexpected drop in a non-manufacturing index last month showed an uneven economic recovery and fueled speculation the Federal Reserve will keep its interest-rate target at record lows.

Fundamental policy decisions and high impact news events that may affect sentiment on January 7th

Tuesday sees the publication of Germany’s latest retail figures, expected in at 0.5%, up from the previous month’s fall of -0.8%. German unemployment is expected to fall by 1K, down from a 10K increase previously. Europe’s flash estimate for CPI is published, expected in at no change at 0.9%. Canada’s trade balance is expected in down $0.2bn, with the USA’s down by -$40 bn. It’s the difference in value between imported and exported goods and services during the reported month.
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