Optimism was in evidence on both sides of the Atlantic in Wednesday’s trading sessions with Europe particularly bullish as Germany’s main DAX index once again posted a record high. The reason for European bullishness was for two reasons; the Euro area posted a very encouraging trade surplus of €17.1 billion in November 2013, in November 2012 it was €12.5billion positive, demonstrating the economic improvement the area has made over the past year or so. Secondly Spanish government bonds rose, along with the securities of Europe’s most indebted nations, due to the euro area trade surplus for November and Portuguese borrowing costs declining at a debt sale.
USA producer prices rose by 0.4% in the latest published data, whilst the empire manufacturing survey in the USA rose to 12.5, the most in a year, whilst new orders rose to a two year high at 11.0, a full 13 points up from the previous -2 reading.
We’ve witnessed nat gas prices increase on NYMEX considerably over recent days due to supply data indicating shortages, that move has appeared to stall with nat gas falling by circa 0.85% on Wednesday. However, it was WTI oil that rose significantly due to storage issues, up by 1.99% on the basis that supplies fell by 7.7 million barrels, below the expectation of a fall of 1.2 million barrels.
The other major USA high impact news event of the day was the publication of the Fed’s beige book showing steady manufacturing growth, rising consumer spending and improving real estate markets.
Euro area international trade in goods surplus 17.1 bn euro
The first estimate for the euro area (EA17) trade in goods balance with the rest of the world in November 2013 gave a 17.1 billion euro surplus, compared with +12.5 bn in November 2012. The October 2013 balance was +16.8 bn, compared with +9.6 bn in October 2012. In November 2013 compared with October 2013, seasonally adjusted exports fell by 0.2% and imports by 1.3%. These data are released by Eurostat, the statistical office of the European Union. The first estimate for the November 2013 extra-EU281 trade balance was a 3.4 bn euro surplus, compared with -3.0 bn in November 2012.
The Conference Board Leading Economic Index for the U.K
The Conference Board Leading Economic Index for the U.K. increased 0.5 percent in November, after increasing 0.4 percent in October and 1.6 percent in September. Six of the seven components made positive contributions to the index this month. The index now stands at 108.3 (2004=100). Bart van Ark, Chief Economist at The Conference Board.
[quote]The fifth consecutive monthly advance by the U.K. LEI suggests that the economy will continue expanding and its pace could even pick up moderately in the first half of 2014.[/quote]
US Producer Price Indexes – December 2013
The Producer Price Index for finished goods advanced 0.4 percent in December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Prices for finished goods declined 0.1 percent in November and 0.2 percent in October. At the earlier stages of processing, prices received by producers of intermediate goods rose 0.6 percent in December, and the crude goods index climbed 2.4 percent. On an unadjusted basis, prices for finished goods increased 1.2 percent in 2013 compared with a 1.4-percent advance in 2012.
Empire State Manufacturing Survey
The January 2014 Empire State Manufacturing Survey indicates that business activity expanded for New York manufacturers, and did so at a faster pace than in recent months. The general business conditions index rose ten points to 12.5, its highest level in more than a year. The new orders index climbed thirteen points to 11.0, a two year high, and the shipments index rose to 15.5. The unfilled orders index remained negative at -8.5. The indexes for both prices paid and prices received were significantly higher, pointing to an acceleration in the pace of input and selling price increases.
Oil gains by 1.99% as U.S.A. supply drops by 7.7 mln barrels
Oil futures added to earlier gains on Wednesday following weekly data from the U.S. Energy Information Administration showing that crude supplies fell by a more-than-expected 7.7 million barrels for the week ended Jan. 10. Analysts polled by Platts were looking for a decline of 1.6 million barrels while the American Petroleum Institute late Tuesday reported a fall of 4.1 million barrels.
Fed Beige Book shows a positive outlook for the USA economy
Business contacts who participated in a Federal Reserve survey expressed a positive outlook about economic growth, expecting it to continue at a modest pace, or even improve, in the coming months. The so-called Beige Book showed steady manufacturing growth, rising consumer spending and improving real estate markets. Firms that provide non-fungible services, which experienced severe contractions in business during the recession, expect economic activity will continue improving at a moderate or strong pace. The assessment will likely encourage the Fed to continue tightening its ultra-loose monetary.
Market overview at 10:15 PM UK time
The DJIA closed up 0.71%, pushing back up towards the critical 16,500 level and closing at 16481. The SPX closed up 0.52%, with the NASDAQ up 0.76%. European indices enjoyed a very positive two trading sessions, euro STOXX closed up 1.58%, CAC up 1.35%, DAX up 2.03% and the UK FTSE closed up 0.78%.
Looking towards the market open on Thursday January 16th the DJIA equity index future is, at the time of writing (10:00 PM UK time January 15th), up 0.67%, the SPX is up 0.48% and the NASDAQ future is up 0.66%. The euro STOXX is up 1.63%, the DAX up 1.96%, CAC future up 1.50% and the FTSE future up 0.93%.
NYMEX WTI oil finished the day up 1.99% at $94.43 per barrel on the news that oil stockpiles/reserves in the USA are at a low measure. NYMEX nat gas halted its recent stellar rise to fall by 0.85% at $4.33 per therm. COMEX gold is down 0.40% on the day at $1240.40 per ounce with silver down 0.58% on COMEX at $20.16 per ounce.
Forex focus
The Dollar Spot Index, which measures the currency’s value against 10 major counterparts, gained 0.5 percent to 1,029.94 mid-afternoon New York time and touched 1,030.54, the strongest since Sept. 9th. It jumped 0.4 percent Tuesday.
The dollar rose 0.6 percent to $1.3602 per euro after sliding to $1.3699 yesterday, the weakest since Jan. 2nd. The U.S. currency gained 0.3 percent to 104.57 yen after jumping 1.2 percent Tuesday. The euro dropped 0.2 percent to 142.22 yen. The dollar rose to the highest level in four months as signs the USA is recovering fueled speculation the Federal Reserve will keep cutting monetary stimulus.
Australia’s currency slumped 0.6 percent to 89.14 U.S. cents after dropping 1 percent Tuesday. The Aussie has slumped 5.7 percent in the past three months, the worst performer according to Bloomberg’s Correlation Weighted Indices that tracks the 10 developed-nation currencies. The yen has weakened 5.4 percent, while the euro has strengthened 2.1 percent and the dollar has added 1.5 percent.
The loonie as 0.4 percent to C$1.0991 per U.S. dollar, the weakest since September 2009, before trading little changed at C$1.0951 mid-afternoon in Toronto. One loonie buys 91.32 U.S. cents. The Canadian dollar reached a four-year low for a second day on speculation that the nation’s central bank may signal at a meeting next week the need for lower interest rates amid faltering economic growth.
The pound fell 0.4 percent to $1.6372 late afternoon London time after declining to $1.6323, the weakest level since Dec. 25th. It has dropped 1.1 percent this year. The U.K. currency rose 0.2 percent to 83.06 pence per euro after appreciating as much as 0.4 percent. The pound dropped to a three-week low against the dollar after a U.S. central bank report showed a measure of manufacturing accelerated at the fastest pace in a year, therefore encouraging investors away from Britain’s currency.
Bonds briefing
The benchmark 10-year note yield gained two basis points, or 0.02 percentage point, to 2.89 percent mid-afternoon New York. The price of the 2.75 percent security due November 2023 fell 6/32, or $1.88 per $1,000 face amount, to 98 25/32. Treasuries fell for a second day after economic reports added to signs the economy is improving, giving Federal Reserve policy makers the room to continue to taper bond purchases.
Spanish 10-year yields dropped five basis points, or 0.05 percentage point, to 3.77 percent late afternoon London time after falling to 3.67 percent on Jan. 9th, the lowest since September 2006. The 4.4 percent bond due in October 2023 rose 0.41, or 4.10 euros per 1,000-euro face amount, to 105.095. The rate has fallen by 39 basis points this year. Spanish government bonds rose along with the securities of Europe’s most indebted nations as the euro area reported a trade surplus for November and Portuguese borrowing costs declined at a debt sale.
Fundamental policy decisions and high impact news events that may affect market sentiment on January 16th
Thursday Germany’s final CPI figure is expected in at 0.4%, whilst the ECB monthly bulletin is published. It reveals the statistical data that the ECB Governing Board evaluated when making the latest interest rate decision, and provides detailed analysis of current and future economic conditions from the bank’s viewpoint. Italy’s trade balance is expected in at €3.88 billion positive. European CPI is expected to come in at 0.8% yearly. The UK auctions 30 year gilts, with the interest rate expected at 3.61% and a bid to cover ratio of 1.7.
Focus then switches to North America with Canada publishing data regarding its foreign securities purchases predicted up to $7.21 billion. Core CPI for the USA is expected in at 0.1% monthly, with CPI at 0.3%. Weekly unemployment claims in the USA are predicted in at 327K. The USA Philly Fed manufacturing index is expected in at 8.8, above the previous reading of 7, with the NAHB index expected in at 58, no change from the previous month. Natural gas storage fell sharply last month by -157 bn units. The USA concludes the day’s key high impact news events with Ben Bernanke holding court with one of his final speeches before handing over the reins to his predecessor Janet Yellen.
