WTI oil rises steeply on strong auto sales in USA as consumer confidence also rises, whilst Detroit stays in bankruptcy

Dec 4 • Morning Roll Call • 1532 Views • Comments Off on WTI oil rises steeply on strong auto sales in USA as consumer confidence also rises, whilst Detroit stays in bankruptcy

shutterstock_108913403Powered by Black Friday sales promotions and rising incentives, USA auto sales hit a fresh yearly high in November, reaching an unexpectedly high annual selling rate of 16.4 million units. Dealers offered many incentives, some indirectly backed by government initiatives, and finance terms of up to nine years on some models. Auto sales in the USA are a sign of consumer confidence improving, rising demand for expensive durable goods indicates that consumers are confident in their future financial position and feel comfortable spending money.

In other news a leading USA confidence index rose whilst Detroit stayed in bankruptcy allowing the ‘city’ to avoid many of the claims put forward by its versions creditors.

The markets on both side of the Atlantic sold off, with European markets in particular selling off quite severely. NYMEX WTI rose significantly, whilst yen rose from its six month low versus the greenback and the UK pound rose over the two trading sessions on Tuesday.

Judge rules that Detroit should be granted bankruptcy protection

Detroit’s historic bid to be declared bankrupt has been approved by a US judge today avoiding attempts by unions and pension funds to block the city’s move, which is likely to lead to heavy cuts.

Judge Stephen Rhodes rejected an attempt by the city’s pension funds and unions to have the historic bankruptcy action halted. Approving the bankruptcy plan Rhodes said:

The city needs help.

Rhodes ruled that pension rights could be “impaired”, but warned he would not necessarily approve any final plan with steep cuts. During the nine-day trial, unions and pension funds argued that the Orr had not taken enough time to negotiate with creditors to avoid filing for chapter 9 bankruptcy protection last summer.

Industrial producer prices down by 0.5% in euro area

In October 2013, compared with September 2013, industrial producer prices fell by 0.5% in the euro area (EA17) and by 0.6% in the EU282, according to estimates from Eurostat, the statistical office of the European Union. In September prices rose by 0.2% and 0.1% respectively. In October 2013, compared with October 2012, industrial producer prices decreased by 1.4% in the euro area and by 1.1% in the EU28. In October 2013, compared with September 2013, prices in total industry excluding the energy sector fell by 0.1% in both the euro area and the EU28.

USA Consumer Confidence Improves In December

The IBD/TIPP Economic Optimism Index improved by 1.7 points, or 4.1%, in December, posting 43.1 vs. 41.4 in November. The index is 1.7 points below its 12-month average of 44.8, 1.3 points below its reading of 44.4 in December 2007 when the economy entered the recession, and 6.3 points below its all-time average of 49.4. Index readings above 50 indicate optimism; below 50 indicate pessimism. The IBD/TIPP Economic Optimism Index has a good track record of foreshadowing the confidence indicators put out later each month by the University of Michigan and The Conference Board.

Auto sales in the USA accelerate in November on Black Friday, due to incentives

Based on an estimate from AutoData, light vehicle sales were at a 16.41 million SAAR in November. That is up 7.6% from November 2012, and up 8.3% from the sales rate last month. Some of the sales in November might be a bounce back from the weakness in October related to the government shutdown. This was above the consensus forecast of 15.7 million SAAR (seasonally adjusted annual rate). This was the highest sales rate since February 2007.

Market overview

The DJIA once again struggled with the key psyche number of 16,000 to close at 15914, down 0.59%, SPX closed down 0.32%, NASDAQ down 0.20%. European shares experienced a huge sell off; STOXX down 2.06%, CAC down 2.65%, DAX down 1.90% and the UK FTSE down 0.95%. Looking towards equity index futures the DJIA future is down 0.66% at the time of writing, SPX down 0.45%, NASDAQ future down 0.12%. STOXX future is down 1.95%, DAX down 1.89%, can down 2.38% and FTSE down 0.88%.

NYMEX WTI oil rose significantly, up 2.94% at $96.58 per barrel. NYMEX nat gas closed down on the day by 0.25% at $3.98 per therm. COMEX gold closed up on the day by 0.23% at $1223.10 per ounce, COMEX silver down 0.72% at $19.15 per ounce.

Forex focus

The yen advanced 0.6 percent to 102.32 per dollar in New York’s afternoon session after sliding to 103.38, the weakest level since May 23rd. Japan’s currency gained 0.2 percent to 139.09 per euro after depreciating to 140.03, the least since Oct. 14th, 2008. The euro gained 0.4 percent to $1.3593, almost the highest level since Oct. 31st. The yen rose from a six-month low against the dollar as investors awaited U.S. job data this week that may provide further evidence as to when the Federal Reserve will reduce stimulus that has weakened America’s currency.

The loonie, as the Canadian dollar is known, fell 0.1 percent to C$1.0651 per U.S. dollar in Toronto time. Earlier it dropped to C$1.0673 per U.S. dollar, the least since August 2010. One loonie buys 93.88 U.S. cents. The Canadian dollar touched the lowest level in more than three years versus its U.S. counterpart on speculation the chances of a cut in the Bank of Canada’s benchmark lending rate are rising. The Canadian dollar has lost 3.2 percent in the past three months against nine developed-market peers tracked by the Bloomberg Correlation-Weighted Index. The U.S. dollar dropped 2 percent.

The pound rose 0.3 percent to $1.6409 late in London time after advancing to $1.6443 yesterday, the highest level since August 2011. The U.K. currency was little changed at 82.83 pence per euro. It appreciated to 82.53 pence yesterday, the strongest since Jan. 11. The pound strengthened toward a two-year high against the dollar after U.K. construction activity expanded at its fastest pace in more than six years in November amid a revival in the housing market.

Bonds

Canada’s benchmark 10-year government bonds rose, pushing yields down three basis points, or 0.03 percentage point, to 2.58 percent. The price of the 1.5 percent securities maturing in June 2023 increased 20 cents to C$90.97.

The U.S. 10-year yield declined one basis point, or 0.01 percentage point, to 2.78 percent late New York time. It fell as much as four basis points after rising one basis point earlier. It reached 2.81 percent yesterday, the highest since Nov. 21st. The price of the 2.75 percent security maturing in November 2023 gained 3/32, or 94 cents per $1,000 face amount, to 99 23/32.

Fundamental policy decisions and high impact news events that could affect market sentiment on December 4th

Wednesday there’s a raft of PMIs published early morning, Spanish and Italian final services PMIs with Europe’s final services PMI also published expected in at 50.9. The UK services PMI is expected in at 62.1. There are OPEC meetings all day Wednesday, naturally these could have a positive, or negative impact on the price of oil. Retail sales for Europe is expected in at +0.2% from the -0.6% negative the previous month. Europe’s revised GDP growth is expected in at 0.1%.

The USA ADP employment numbers are expected to show an improvement of circa 185K jobs created for the month. Canada’s trade balance is expected in up to $0.7bn, the USA’s is expected in at $40.3 bn. The bank of Canada will publish its decision on its rate setting, expected to stay at 1.00%. Further USA news comes in the form of new home sales expected in at circa 432K, whilst the USA PMI for non-manufacturing is expected in at 55.4. Crude oil inventories completes the day for USA high impact news releases with the beige book data also published. Australia’s trade balance completes the day for news events.

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