In a relatively quiet trading day, due to many European bourses being closed for a bank holiday, the main high impact news focused on the weekly unemployment claims from the USA. The data came in much better than excepted, however, the previous week’s upward revisions took the shine off the data, as did the rolling four week average number which crept ahead to flirt with the 350K level, which seems to have been the average range score the index has remained in for the majority of 2013. But the actual improved headline number caused a cheer on Wall Street with the main indices rising in tandem. The DJIA closing up very close to the 16,500 critical psyche ‘handle’.
The UK’s CEBR, a right wing think tank noted for its pro UK and anti-European stance, caused a stir with its press release on Thursday in which it predicted that China will overtake the USA as the globe’s premium economy in 2028. However, the other notable surprise element in the report came with the prediction that the UK will overtake Germany as the leading economy in Europe. In what many analysts will presume is a tongue in cheek reference the CEBR also suggested that if Germany leaves the EU their growth rate will be greater.
The UK’s economy is currently dwarfed by that of Germany, who exports circa $1 trillion of goods each year, versus the UK’s $480 billion. Germany are currently experiencing 5 percent unemployment, versus the UK’s 7.2%, wages are higher in Germany as is employee protection, whilst University education costs approximately a fifth of the UK’s. Meanwhile Germany is heading the European banking union, from which the UK is busily excluding itself, which could see Frankfurt leapfrog London as Europe’s premier financial centre. Finally Germany plans to export $500 billion per year to China before the decade is out whereas the UK plans to deliver $100 bn worth of goods. Whilst it would be unfair to ask if the CEBR would have been better to wait until April 1st to spout its predictions the claims look wild and far too nationalistic to be taken seriously.
US Unemployment Insurance Weekly Claims Report
In the week ending December 21, the advance figure for seasonally adjusted initial claims was 338,000, a decrease of 42,000 from the previous week’s revised figure of 380,000. The 4-week moving average was 348,000, an increase of 4,250 from the previous week’s revised average of 343,750. The advance seasonally adjusted insured unemployment rate was 2.2 percent for the week ending December 14, unchanged from the prior week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending December 14 was 2,923,000, an increase of 46,000 from the preceding week.
Cebr’s World Economic League Table report for 2013 shows China overtaking US in 2028; UK to overtake Germany ‘around 2030’
Their latest forecasts now show China overtaking the US in 2028 to become the world’s largest economy. This is later than some analysts have suggested and reflects the continuing performance of the US as the West’s strongest economy and the slowing down of the Chinese economy.
The UK is the West’s second best performing economy. Indeed it is the only major Western economy to move up the league table (temporarily) becoming the world’s 5th largest economy in 2018 by overtaking France. After that it slips back to 7th place in 2023 and 2028 as India and Brazil overtake. But by 2028 the UK economy is forecast to be only 3% smaller than the German economy and is likely to overtake Germany to become the largest Western European economy around 2030.
Slow growth, a weakening currency and for some countries adverse demographic dynamics hit the European economies. CEBR make the forecasting assumption that the Euro holds together for these forecasts. If the Euro broke up, the outlook for German GDP would be much better and the outlook for the other European economies correspondingly worse. On the assumption that the Euro holds, Germany drops from the 4th largest economy in 2013 to the 6th largest in 2023 and 2028. For France the drop is more precipitous – from 5th in 2013 to 8th in 2018 to 10th in 2023 to 13th in 2028. Similarly Italy drops from 8th in 2013 to 15th in 2028 and Spain from 13th in 2013 to 18th in 2028.
Market overview at 10:30 PM UK time
The DJIA closed up 0.75%, the SPX up 0.47%, the NASDAQ up 0.28%. The DJIA future is up 0.73%, the SPX future up 0.40%, NASDAQ up 0.36%.
NYMEX WTI oil was up 0.42% on the day at $99.64 per barrel, NYMEX nat gas was up 0.50% on the day at $4.44 per therm. COMEX gold rose 0.56% at $1210.00 per ounce, with silver at $19.76 per ounce up 1.42% on the day.
Forex focus
The yen fell 0.4 percent to 104.81 per dollar late Thursday in New York time, after reaching 104.84, the weakest level since October 2008. Japan’s currency dropped 0.5 percent to 143.49 per euro, after sliding to a five-year low of 143.54. The 17-nation shared currency rose 0.1 percent to $1.3691.
Japan’s currency has lost 17.2 percent against the dollar in 2013, the second biggest decline among its 16 major peers after the South African rand’s 18.2 percent drop. The euro and Danish krone were the biggest winners, having rallied 3.8 percent.
Australia’s dollar slumped 0.3 percent to 88.96 U.S. cents as China’s stocks declined amid investor disappointment the government didn’t take further measures to ease a cash crunch. The Shanghai Composite Index lost 1.6 percent to 2,073.10 at the close, the lowest level since Aug. 23rd.
Bonds
The yield on the benchmark 10-year note rose as much as two basis points, or 0.02 percentage point, to 2.998 percent. That was the highest since Sept. 6th, when the yield reached 3.005 percent, the most since July 2011. The yield was 2.991 percent late New York time, up one basis point. The price of the 2.75 percent security due in November 2023 declined 3/32, or 94 cents per $1,000 face amount, to 97 30/32.
Thirty-year bond yields increased three basis points to 3.92 percent and touched 3.93 percent, the highest since Dec. 6th. Two-year note yields were little changed at 0.4 percent after rising earlier to 0.41 percent, the most since Sept. 16th. The gap between yields on U.S. two- and 10-year notes widened to as much as 2.59 percentage points, the most on an intraday basis since July 2011.
Fundamental policy decisions and high impact news events for December 27th
Friday is a thin day for data and concerns mainly gas and oil storage data for the USA. Crude oil inventories are expected to repeat the previous month’s fall of -2.9% whilst gas storage is expected to fall by a similar amount to the previous month’s figure of -285bn metric therms.
