WTI oil crashes by 3% as USA and European markets sold off on Thursday

Jan 3 • Morning Roll Call • 1692 Views • Comments Off on WTI oil crashes by 3% as USA and European markets sold off on Thursday

shutterstock_142122985Thursday saw the main indices and the FX market spark into life after the holiday break. Many European markets sold off considerably in the USA afternoon session, despite the promising PMIs published by Markit Economics in the morning session, then followed by a promising USA manufacturing PMI. Similarly the selloff continued in the USA session with many of the USA indices down sharply.

Analysts and market commentators were left scratching their collective heads regarding the selloff; perhaps it was the slowing factory growth in China, or France’s manufacturing decline. Maybe it was profit-taking by traders. Or maybe it’s the start of a severe correction. Whatever the reason the mood of pessimism didn’t chime with some of the healthy data published in relation the USA economy.

The USA Markit PMI for manufacturing came in at 55, whilst the ISM survey came in at 57 for December, the second highest of 2013. Also the USA unemployment claims for the past week came in at 339K, down from 341K but below the rolling 4 week average of 357K.

Oil crashed in the afternoon session the reason being Libya preparing to restart a major oilfield and speculation of a sharp rise in crude stockpiles in Cushing, Oklahoma. Libya’s National Oil Corp (NOC) said on Thursday it plans to restart the El Sharara oilfield and hopes to resume output within days.

December 2013 Manufacturing ISM Report On Business

Economic activity in the manufacturing sector expanded in December for the seventh consecutive month, and the overall economy grew for the 55th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business. The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee. “The PMI registered 57 percent, the second highest reading for the year, just 0.3 percentage point below November’s reading of 57.3 percent.

US output increases at fastest pace since March 2012

Business conditions in the U.S. manufacturing sector improved at the fastest rate since January, according to the final December Markit U.S. Manufacturing Purchasing Managers’ Index. At 55.0, up from 54.7 in November and above the earlier flash estimate of 54.4, the PMI indicated a solid rate of expansion. The PMI averaged 53.8 in the three months to December and, above the average for the three months to September of 53.2, was the highest since the first three months of the year. Production in the manufacturing sector continued to rise strongly in December.

US Unemployment Insurance Weekly Claims Report

In the week ending December 28, the advance figure for seasonally adjusted initial claims was 339,000, a decrease of 2,000 from the previous week’s revised figure of 341,000. The 4-week moving average was 357,250, an increase of 8,500 from the previous week’s revised average of 348,750. The advance seasonally adjusted insured unemployment rate was 2.2 percent for the week ending December 21, unchanged from the prior week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending December 21 was 2,833,000, a decrease of 98,000 from the preceding week.

Market overview at 10:00 PM UK time

The DJIA closed down 0.82%, the SPX down 0.89% and the NASDAQ closed down 0.80%. The euro STOXX closed down 1.58%, CAC down 1.60% DAX down 1.59% and the UK FTSE down 0.46%. The DJIA equity index future is at the time of setting down 0.64%, the SPX future down 0.79% and the NASDAQ down 0.65%. The DAX future is down 1.94%, the CAC down 1.45% and the UK FTSE future down 0.37%.

NYMEX WTI oil was down 2.99% on the day at $95.48 per barrel, with NYMEX nat gas up 1.80% at $4.31 per therm. COMEX gold rose by 1.89% on the day to $1224.60 per ounce with silver on COMEX up 3.30% at $20.01 per ounce.

Forex focus

The pound dropped 0.8 percent to $1.6442 late in London from the close on Dec. 31st after climbing to $1.6603, the strongest level since August 2011. The U.K. currency depreciated 0.2 percent to 83.17 pence per euro. The pound fell the most in 12 weeks versus the dollar amid speculation the Bank of England will keep its interest rates at a record low while the Federal Reserve withdraws stimulus as the U.S. economy improves.

The euro dropped 0.8 percent to $1.3655 in New York time after reaching $1.3630, the lowest since Dec. 20th. The greenback fell 0.6 percent to 104.70 yen after rising to 105.44, the most since October 2008. Japan’s currency climbed 1.3 percent to 142.97 per euro. The euro fell against the dollar amid speculation the rally that made it the strongest major currency in 2013 is due for a pause as central-bank policies regarding monetary easing and interest rates diverge.

The loonie, as Canada’s currency is known, depreciated 0.2 percent to C$1.0664 per U.S. dollar late in Toronto. Earlier it touched C$1.0589 per U.S. dollar, the strongest level since Dec. 23rd. One loonie purchases 93.77 U.S. cents. The currency dropped 6.6 percent in 2013, the biggest loss against the greenback in five years. The Canadian dollar rose against most major counterparts as manufacturing in the U.S., Canada’s largest trading partner, increased in December at the second-fastest pace in more than two-years.

The loonie has dropped 4.4 percent in the past 12 months versus nine developed-nation currencies tracked by the Bloomberg’s Correlation Weighted Indices. The Australian dollar slid 13 percent, and the U.S. dollar gained 4.4 percent.

Bonds

The 10-year UK gilt yield was little changed at 3.03 percent after rising to 3.08 percent, the highest since July 26th, 2011. The price of the 2.25 percent bond maturing in September 2023 was 93.525. U.K. government bonds lost 4.3 percent last year, their biggest annual decline since 1994. German securities fell 2.3 percent and U.S. Treasuries declined 3.4 percent.

Ten-year USA yields dropped five basis points, or 0.05 percentage point, to 2.98 percent late in New York time after climbing earlier to 3.05 percent, the highest since July 2011. The price of the benchmark 2.75 percent security maturing in November 2023 increased 3/8, or $3.75 per $1,000 face amount, to 98. Ten-year yields jumped 1.27 percentage points in 2013. They averaged 3.49 percent in the past decade. Treasury 10-year yields fell from the highest level in more than two years as investors speculated whether the U.S. economy will improve enough for the Federal Reserve to end bond purchases in 2014.
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