In a relatively quiet afternoon session for high impact news and policy decisions the main news concerning the USA was in relation to the increase in new home sales which unexpectedly climbed in January to the highest level in more than five years, showing underlying strength in the industry even in the midst of an unusually harsh season of weather. Sales actually increased by 9.6 percent to a 468,000 annualized.
In other USA news the level of crude oil supplies climbed less than expected. The level of barrels rose 100K versus an expected rise of 1.5million barrels. The storage issues were worse for gasoline were stockpiles fell by 2.8million barrels.
Turning our attention to Europe an interesting note came on the wires regarding the potential for the ECB to finally enter the USA world of quantitative easing, BNP Paribas are convinced that in order to ensure that deflation doesn’t become an issue in 2014 the ECB will find a way to circumnavigate their own rules and that of the EU and turn on the printing presses. Germany’s government bonds advanced with their peers in the euro area as the prospect of additional stimulus from the European Central Bank boosted demand for fixed-income assets.
A member of the UK’s BoE MPC Ben Broadbent gave an eagerly awaited speech in which there was no clue as to whether or not the UK banks policy committee will raise interest rate as in the short term. Although if his fellow committee members comments in the morning are anything to go by, then UK investors will be waiting some time for a rise in the base rate. Sterling rose for a third day versus the euro as Ben Broadbent said the currency’s level reflects the strength of the British economy.
Will the ECB to take the QE plunge this year?
Despite the complexity of political, legal and financial obstacles, the European Central Bank will this year start printing money, several years after its counterparts in the United States, Britain and Japan. That’s the view of economists at BNP Paribas, one of the first major financial institutions to predict the ECB will use the printing press, the central bank weapon of last resort, to slay deflation and steer the economy away from recession:
[quote]Asset purchases are increasingly necessary in order for the ECB to meet its primary objective of maintaining price stability. Inflation in the euro area has persistently surprised to the downside, eroding the safety margin against deflation. Additional conventional policy easing will not deliver sufficient monetary accommodation for the price stability mandate to be met. Thus, the ECB will reluctantly have to follow other central banks into balance sheet expansion via asset purchases.[/quote]
The UK economy and the world economy – Ben Broadbent
In a speech at the Institute for Economic Affairs, external Monetary Policy Committee member Ben Broadbent discussed the relationship between UK and global growth. He stressed the importance of developments in the global economy and international capital markets for both short-run domestic demand and economic performance over longer horizons. He concluded that, while the influence of the rest of the world can mean that problems that arise in one part of the world can rapidly arrive on our own.
Sales of New Homes in U.S. Unexpectedly Climb to Five-Year High
Purchases of new U.S. homes unexpectedly climbed in January to the highest level in more than five years, showing underlying strength in the industry even in the midst of unusually harsh weather. Sales increased 9.6 percent to a 468,000 annualized pace, exceeding the highest estimate of economists surveyed by Bloomberg and the most since July 2008, figures from the Commerce Department showed today in Washington. Demand improved in three of four regions. Home remodelling companies such as Mohawk Industries Inc. remain upbeat about the market’s prospects for 2014 as property values climb and the economy improves.
U.S. crude-oil supplies climb less than expected
Oil futures climbed a bit more on Wednesday following weekly data that showed a climb in crude supplies that was much less than the market expected. The U.S. Energy Information Administration said crude stockpiles rose 100,000 barrels for the week ended Feb. 21. Analysts polled by Platts were looking for a climb of 1.5 million barrels. Gasoline supplies fell by 2.8 million barrels, while distillate stockpiles unexpectedly rose 300,000 million barrels, the EIA said. Gasoline stockpiles were expected to fall 1.5 million barrels while distillate supplies were seen down 2 million barrels, according to the Platts poll.
Market overview at 10:00 PM UK time
Euro STOXX closed down 0.29%, CAC down 0.40%, DAX down 0.39%, FTSE 100 down 0.46%. The DJIA closed up 0.12%, SPX down 0.13%, NASDAQ up 0.05%. The DJIA equity index future is down 0.14%, SPX down 0.18%, NASDAQ future down 0.37%. STOXX future is down 0.63%, DAX future down 0.74%, CAC future down 0.66% FTSE future down 0.97%.
NYMEX WTI oil closed the day up 0.76% at $102.60 per barrel, NYMEX nat gas down 4.73% at $4.86 per therm, COMEX gold finished the day down 1.01% at $1329.20 per ounce with silver down 3.37% at $21.26 per ounce.
Forex focus
The dollar rose 0.5 percent to $1.3673 per euro mid-afternoon in New York, the biggest advance this month, and climbed 0.3 percent to 102.56 yen. The Japanese currency gained 0.2 percent to 140.21 per euro. The dollar rose the most against the euro this month as new-homes sales unexpectedly rose last month, boosting speculation Federal Reserve Chair Janet Yellen will reiterate the central bank’s plan to continue to cut bond-buying when she testifies before a Senate panel tomorrow.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, rose 0.4 percent to 1,023.40. Treasury 10-year note yields touched a one-week low amid as demand for safer assets rose as Russia ordered military tests amid turmoil in Ukraine.
The yuan was at 6.1248 per dollar after depreciating to 6.1351, the weakest since July 30th, according to China Foreign Exchange Trade System prices. The People’s Bank of China cut the yuan’s fixing by 0.01 percent to 6.1192 per dollar, the weakest since Dec. 20. The spot rate was 0.08 percent lower than the fixing.
The pound advanced 0.3 percent to 82.12 pence per euro late London time, having strengthened 0.7 percent this week. The U.K. currency fell 0.2 percent to $1.6648 after rising to $1.6823 on Feb. 17th, the highest since November 2009. The pound will extend its world-beating advance of the past year as the Bank of England shows little concern a strong currency will harm the economy, according to Citigroup Inc.
Bonds briefing
The yield on the current five-year note fell two basis points, or 0.02 percentage point, to 1.50 percent afternoon time in New York. The benchmark 10-year (USGG10YR) note yield decreased two basis points to 2.69 percent. It touched 2.68 percent earlier, the lowest in a week. Treasuries rose after the U.S. auctioned $35 billion in five-year securities to stronger-than average demand.
Germany’s 10-year yield fell three basis points, or 0.03 percentage point, to 1.62 percent late London time after dropping to 1.60 percent on Feb. 5th, the lowest level since Aug. 1st. The 1.75 percent bund due in February 2024 rose 0.28, or 2.80 euros per 1,000-euro ($1,367) face amount, to 101.23.
French 10-year yields declined three basis points to 2.20 percent, and similar-maturity Dutch rates dropped three basis points to 1.84 percent. Germany’s government bonds advanced with their peers in the euro area as the prospect of additional stimulus from the European Central Bank boosted demand for fixed-income assets.
Fundamental policy decisions and high impact news events for Thursday February 27th
Thursday private capital expenditure in Australia is expected in at -1.0%, FOMC member Pianalto speaks, Swiss GDP is expected in at 0.4% for the quarter. German import prices are expected in at -0.1% down, preliminary German GDP is anticipated to come in at 0.6% up in the latest Q. German unemployment is expected to come in at -10K down.
Canada’s current account is expected to have fallen to -$16.5 bn. Core durable orders in the USA are expected to have fallen by 0.1%. Unemployment claims (weekly) are expected to come in at 333K. Natural gas storage is expected to be similar to last month at -250 bn therms. Building consents in New Zealand are expected to rise at a similar level to previously, at 7.6%.
Attention then turns to Japan, where household spending is expected to rise by 0.5%, national core CPI is expected in at 1.3%, the unemployment rate is expected in at 3.7%. Retail sales in Japan are expected in at 3.9% up.
