After the excitement of the unexpected taper decision from the FOMC on Wednesday European markets, which had already closed as the decision was revealed, immediately rallied on open to reach an ‘equilibrium’ with the USA bourses. The USA markets were mainly flat in the afternoon session as the medium to high impact news events provided mixed results.
USA unemployment claims for the week rose sharply, exceeding analysts’ predictions; the claimant count rose 10,000 from the previous week to 379K, whilst the rolling 4 week average increased by 13,250 to 343,500. Once again the reading reached that tight range that we’ve advised the count has stayed in for the majority of 2013. It’s also worth noting that part of the rationale behind the Fed’s decision to taper was based on improved employment and claimant count numbers, it’s only taken a day for that reasoning to be rendered questionable.
In other USA news existing home sales in the USA declined by 4.3% in a month, they fell below the yearly average for the first time in twenty months, adding fuel to the belief that the euphoria surrounding housing activity looks overdone. Although the NAR did point to rising prices as a heathy indication, healthy for investors, but not buyers, such as first time buyers.
The Philly Fed print came in below expectations; the reading was 7 when most analysts had predicted 10. On balance however, there’s been a positive reading over the last seven months.
US Unemployment Insurance Weekly Claims Report
In the week ending December 14, the advance figure for seasonally adjusted initial claims was 379,000, an increase of 10,000 from the previous week’s figure of 369,000. The 4-week moving average was 343,500, an increase of 13,250 from the previous week’s revised average of 330,250. The advance seasonally adjusted insured unemployment rate was 2.2 percent for the week ending December 7, 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 December 7 was 2,884,000, an increase of 94,000.
Existing-Home Sales Decline in November, but Strong Price Gains Continue
Existing-home sales fell in November, although median prices continue to show strong year-over-year growth, according to the National Association of Realtors. Total existing-home sales, which are completed transactions that include single-family homes, town-homes, condominiums and co-ops, dropped 4.3 percent to a seasonally adjusted annual rate of 4.90 million in November from 5.12 million in October, and are 1.2 percent below the 4.96 million-unit pace in November 2012. This is the first time in 29 months that sales were below year-ago levels.
The Conference Board Leading Economic Index for the U.S. Increased
The Conference Board Leading Economic Index (LEI) for the U.S. increased 0.8 percent in November to 98.3 (2004 = 100), following a 0.1 percent increase in October, and a 1.0 percent increase in September.
Ataman Ozyildirim, Economist at the Conference Board;
[quote]The LEI continues on a broad-based upward trend, suggesting gradually strengthening economic conditions through early 2014. Improving labor markets and new orders in manufacturing, combined with strong financial indicators, drove November’s gain. However, consumers’ outlook for the economy and the drop in housing permits continue to pose risks in 2014.[/quote]
December 2013 Business Outlook Survey – Philly Fed
Manufacturing growth in the region continued in December at a pace similar to that of November, 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 growth, and readings improved slightly in each category from November. The survey’s indicators of future activity moderated slightly but continue to suggest general optimism about growth over the next six months.
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, was relatively unchanged from November to December, at 7.0. The index has now been positive for seven consecutive months. The percentage of firms reporting increased activity this month (29 percent) was greater than the percentage reporting decreased activity (22 percent).
Market overview at 11pm UK time
The DJIA closed up marginally by 0.07%, the SPX closed down 0.06% and NASDAQ down 0.29%. European markets played catch up with the bullish momentum move post the Fed’s taper decision on Wednesday, STOXX closed up 1.88%, CAC up 1.64%, DAX up 1.68%, FTSE up 1.43%.
Looking towards tomorrow’s open the DJIA equity index future is up 0.02%, SPX future down 0.17%, NASDAQ future down 0.45%. Euro STOXX equity index future is up 1.78%, DAX future up 1.56%, CAC future up 1.66%, FTSE up 1.52%.
NYMEX WTI oil rose 0.99% to $98.77 per barrel, NYMEX nat gas rose a significant 4.52% to $4.44 per therm due to storage capacity concerns. COMEX gold experienced a significant sell off, down 3.69% on the day to $1189.40 per ounce. COMEX silver closed down on the day 4.11% at $19.24 per ounce.
Forex focus
The dollar rose 0.2 percent to $1.3655 per euro mid-afternoon New York time after advancing to $1.3650, the strongest level since Dec. 6th. The U.S. currency dropped 0.1 percent to 104.21 yen. The yen gained 0.3 percent to 142.29 per euro after sliding to 142.90 yesterday, the weakest level since October 2008. The dollar climbed to the strongest level in almost two weeks against the euro as investors assess Federal Reserve plans to wind down bond-buying next year amid signs that economic growth is gaining momentum. The U.S. currency advanced versus most of its 16 major counterparts after the Federal Open Market Committee said yesterday it would slow monetary stimulus to $75 billion a month from $85 billion.
The U.S. Dollar Index, which tracks the greenback against 10 major peers, rose 0.2 percent to 1,023.07 after gaining 0.5 percent yesterday. The U.S. currency has risen 4.3 percent this year, according to Bloomberg’s Correlation-Weighted Indices that tracks the 10 developed-nation currencies. The euro gained 8.4 percent, while the yen tumbled 14.9 percent.
The loonie, as the Canadian dollar is known gained 0.4 percent to C$1.0666 per U.S. dollar late New York time. Earlier it touched C$1.0728, the lowest since May 2010. One loonie buys 93.76 U.S. cents. The Canadian dollar rose from the lowest in three years on bets the Federal Reserve will keep interest rates low longer than forecast while it slows the pace of its stimulative asset purchases.
Futures of crude oil, highly correlated with commodity currencies such as the loonie, rose 1 percent to $98.77 per barrel in New York after touching $99.17, the highest since Oct. 22nd.
Bonds
Treasury 10-year yields increased four basis points, or 0.04 percentage point, to 2.93 percent late afternoon New York time. They reached 2.95 percent, the highest since Sept. 13th. The price of the 2.75 percent security due in November 2023 fell 10/32, or $3.13 per $1,000 face amount, to 98 14/32.
Five-year note yields touched 1.68 percent, the highest level since Sept. 16th, before trading at 1.64 percent, up 10 basis points. The yield on the two-year note increased three basis points to 0.36 percent, while the 30-year bond yield was little changed at 3.9 percent.
Fundamental policy decisions and high impact news events that could affect sentiment on December 20th
Friday sees the publication of German PPI for the month, predicted to come in flat with the German GfK business climate expected in at 7.4. The UK’s current account data is expected to worsen at -13.8 bn, with public sector borrowing predicted to remain steady at £6.6 bn and final GDP expected in at 0.8%.
Core data for Canada includes CPI predicted to come in at 0.1% with retail sales expected to be flat and CPI expected in up 0.2%. The USA final GDP data is predicted to show growth of 3.6% annually. Europe’s consumer confidence is predicted to come on at -15 whilst the last high impact news event of the week sees the nomination vote for Fed chairman.
