14 Jan 2010 Market Headlines and Update
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Posted by:
Traders News Sub-Editor, 14.1.2010
Headlines:
•Fed's Charles Evans says that Fed is going to wait for the economy to improve in a strongly sustainable fashion and until that happens, it's unlikely that there will be a change in policy
•Fed's William Dudley says short-term interest rates may remain low for at least 6 months and possibly for as long as 2 years depending on how the economy develops
•Australian employment overshot expectations for a 4th straight month in Dec while the jobless rate fell to an 8-month low of 5.5%, down from a revised 5.6% in Nov
•Japan's core machinery orders tumbled to a record low and fell to -11.3% in Nov, adding to govt fears of a return to recession
Europe:
The ECB is set to start 2010 by flagging that interest rates will remain at a record low of 1.0% for some time. All 80 economists in a recent Reuters poll see the ECB keeping rates on hold, with all but a handful seeing the central bank keeping them there well into the 2nd half of the year as it waits for the economy's recovery to firm up. – Reuters poll
Europe's asset-backed bond market, dormant for a year, is coming back to life as BMW and Ford Motor Co. sell more than 1 billion euros ($1.45 billion) of debt backed by automobile loans and leases.
U.S and Canada:
Fed's Charles Evans says that Fed is going to wait for the economy to improve in a strongly sustainable fashion and until that happens, it's unlikely that there will be a change in policy.
Fed's William Dudley said short-term interest rates may remain low for at least 6 months and possibly for as long as 2 years depending on how the economy develops.
Reports from the 12 Fed districts indicated that while economic activity remains at a low level, conditions have improved modestly further, and those improvements are broader geographically than last time according to the periodic Beige Book report.
The Obama administration will set bank's levy to pay for the cost of the crisis based on their total assets, minus insured deposits and shareholders equity placing a greater burden on institutions such as Goldman Sachs, which have large securities businesses, as well as those consumer lenders that never built up a deposit base to match the growth in their loan portfolios.
Australia & New Zealand:
Australian employment blew past expectations for a 4th straight month in Dec while the jobless rate fell to an 8-month low. Australia recorded a net 35,200 new jobs in Dec, over 3 times the market forecast and an unexpected drop in Dec unemployment as it fell to 5.5%, down from a revised 5.6% in Nov, with the fall largely attributed to a surge in part-time employment.
Japan:
Japan's core machinery orders tumbled to a record low and fell to -11.3% in Nov, adding to govt fears of a return to recession that could heighten the need for yet more fiscal stimulus spending.
Asia and RoW:
China's central bank surprised the market by leaving the yield on its 3-month bills unchanged from a week ago. It auctioned 50 billion yuan ($7.3 billion) of three-month bills at a yield of 1.368%, below forecasts of about 1.4%.
Fitch Ratings affirmed its "A+" long-term foreign currency rating on China, but said a surge in investment and credit growth could have rating implications down the road.
The head of the Asian Development Bank warned it was too early for Asian countries to end stimulus policies and said he saw no big risk of price bubbles in China.
Events (London Time):
DEU 07:00 HICP (Dec F)
ESP 08:00 HICP (Dec)
ESP 08:00 Core CPI (Dec)
EMU 10:00 Industrial Production (Nov)
EMU 12:45 ECB rate announcement
USA 13:30 Import Price Index (Dec) 1.00%
USA 13:30 Initial Jobless Claims
USA 13:30 Retail sales (Dec) 0.6%
USA 13:30 Retail Sales Less Autos (Dec) 0.5%
USA 15:00 Business Inventories (Nov)
NZL 21:45 Electronic Card Transactions (Dec)
Tags: Market, Headlines, 2010, News, Updates, Europe, U...
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Mid-Month Market News
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Reason
Posted by:
Traders News Sub-Editor, 17.12.2009
Headlines:
$ The Fed held its target range for the fed funds rate at 0-0.25% and maintained its key forward-looking assessment that the rate will remain exceptionally low for an extended period; the timeline and targets for asset purchases were reaffirmed; the macro assessment noted further expansion in economic activity but the statement sounded somewhat more cautious on the pace of improvement in consumer activity; the Fed reiterated that most of the special liquidity facilities will indeed be closed by 1st February as outlined in June
$ US equities rose early in the session on better-than-expected housing starts data but trimmed gains after release of the FOMC statement; the S&P 500 closed up 0.1% at 1109.18; sector performance was mixed with basic materials (+1.2%), financials (+0.7%) and oil & gas (+0.4%) posting the largest gains
$ USTs showed little reaction to the FOMC decision; the yield on the 2yr benchmark fell 2bps to 0.831%; the 10yr yield gained 1bps to 3.598%
FX The dollar strengthened slightly after the FOMC noted that economic activity continued to pick-up and also confirmed that it will close down a number of its liquidity facilities next year; the dollar index still ended flat on the day at 76.90; cable rose 0.4% to 1.633 on the surprise decline in jobless claimants; EUR/GBP fell 0.5% to 0.889
€ S&P cut its rating on Greece to BBB+ from A- and left the rating on “creditwatch” negative; this follows last week's rating downgrade from Fitch
€ The ECB allocated €97bn at the 12m tender, in line with the median of likely scenarios for the operation, representing a neutral level of demand in line with our expectations at the start of the week
£ UK BoE's Miles: economic slack in the UK is “very substantial” and QE should be guided by its impact on the real economy
$ US housing starts accelerated to an annualized pace of 574k in November from 527k in October but improvement has stalled in recent months; building permits accelerated to 584k, the highest since Nov’08
$ The US CPI rose 0.4%MoM in November as expected versus +0.3% in October; the core ex-food & energy measure paused for the first time sine Dec’08, following a gain of 0.2% in October
G+ Bloomberg global confidence fell for a 2nd consecutive month, to 58.9 in December versus 60.3 in November and 61.7 in Oct
€ Eurozone advance manufacturing PMI rose 0.4pts to 51.6 in December and remained the highest since Mar’08; the services PMI increased 0.7pts to 53.7, reaching the highest since Nov’07; new business activity expanded at a faster pace on both measures and job losses slowed
€ The Eurozone final November CPI was revised down to 0.5%YoY from 0.6% in the “flash” estimate, remaining sharply higher than -0.1% posted in October; core prices ex-energy, food, alcohol & tobacco rose at a slower pace of 1.0% vs. 1.2% in October, the weakest increase since a matching reading in Feb’01
£ UK claimants for jobless benefits fell 6.3k in November, the first decline since Feb’08, and October's increase was revised down to 5.9k (initially 12.9k); the ILO unemployment rate which is released with a lag rose to 7.9% in the three months to October versus 7.8% in the three months to September
£ UK average earnings excluding bonuses slowed to a 3m annual pace of +1.7% in October versus +1.8% in September, a new record low in the series’ history since 1996
The Day Ahead
This morning the UK BoE will release the Q4 Inflation Attitudes Survey and the Office of National Statistics will release the November retail sales figures. The state of consumer finances is far from stable and the de-leveraging process has much further to run, but the transition towards more normal conditions has provided a lift for consumer activity, which together with positive year-end seasonal factors has led us to expect a robust retail intake for November.
In the US, the release of the December Philly Fed manufacturing survey will be watched closely after this week's surprise drop in the NY Empire measure.
In policy events, the Senate Banking Committee will hold a confirmation vote today on the nomination of Fed Chairman Bernanke to a 2nd term. Fed's Fisher speaks on "State of the Global Economy" at 18:00
In debt supply, the UK will auction £850m in 1.25% 2027 index-linked gilt.
In today's DMN: FOMC decision; ECB 12 LTRO; US CPI
Tags: Market, News, Mid-Month, Month, December, 2009
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Market Headlines 19th November 2009
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Posted by:
Traders News Sub-Editor, 19.11.2009
Headlines:
• Obama administration's push for heath care reform got a boost when CBO said the latest legislative proposals would reduce the federal deficit by $127bn in the first 10yrs
• Japan may issue 52 trillion yen in new bonds in the current fiscal year to March 2010, up 18% from its current estimate, Japanese media reported
• RBA is optimistic that lending to businesses would pick up now that the economy was recovering, Assistant Governor Debelle said
• Singapore's GDP grew a revised annualized 14.2% in Q3 (prev: 14.9%); central bank lifted its 2010 inflation forecast to 2.5-3.5% and growth forecast to between 3-5%.
Europe:
The French economic activism gets a new push with proposals to invest €35bn of government borrowing in long-term research and industrial projects designed to lift the country's trend rate of growth.
The global recession may cost the British economy about 500 billion pounds ($840 billion) in lost output by the end of 2012, Bank of England projections show.
U.S:
The Obama administration's push for a wide-ranging reform of the US health system received a boost when the non-partisan Congressional Budget Office said the latest legislative proposals would reduce the federal deficit by $127bn in the first 10 years even as it extended coverage to 31m uninsured Americans.
President Obama said he is committed to pushing through a free trade agreement with South Korea that has been stalled by the U.S. auto lobby and unions, who argue it doesn’t do enough to open up Korean markets.
An amendment from Paul Kanjorski, a Democratic representative, was approved by a vote in the House financial services committee, allowing regulators to break up even healthy financial companies if they are percieved to be posing risk to the financial system, in a move that is worrying leading US institutions.
Australia and New Zealand:
RBA is optimistic that lending to businesses would pick up now that the economy was recovering, and saw no sign of a wholesale withdrawal of credit by banks. RBA Assistant Governor Debelle also said competition in the mortgage market would remain stiff enough to stop banks from widening their margins on loans, even though many non-bank lenders had left the business.
S&P's is to quit Australia's retail market following a decision last week by ASIC, the nation's securities regulator, to strengthen oversight of credit rating agencies by making them more accountable for the advice they provide.
New Zealand's main opposition Labour Party will no longer support the central bank's primary policy of targeting inflation, saying it wants a competitive exchange rate and lower borrowing costs.
Japan:
Japan's government, facing sliding tax revenues, may issue 52 trillion yen in new bonds in the current fiscal year to March 2010, up 18% from its current estimate, Japanese media reported. The falling tax revenues also threatens its target issuance cap for the next fiscal year of 44 trillion yen in new bonds, the Mainichi newspaper reported.
Asia and RoW:
Singapore's economy grew 14.2% in Q3 on a seasonally adjusted annualised basis, revised slightly down from an earlier estimate of 14.9% growth but in line with forecasts. Singapore's central bank lifted its 2010 inflation forecast to between 2.5 and 3.5% and growth forecast to between 3-5%.
South Korean regulators will introduce measures to control foreign currency liquidity at local banks, including limits on speculative forex deals, an official said.
Hong Kong Exchanges & Clearing Ltd.'s Chairman Ronald Arculli said asset bubbles may be looming in Asia amid burgeoning stock and property prices.
A large bubble is forming in China's property market as a result of Beijing's credit-driven stimulus programme, Zhang Xin, chief executive of Soho China property developers said.
Brazil took another step aimed at containing the appreciation of its currency, unveiling a 1.5% tax on certain trades involving American Depositary Receipts issued by Brazilian companies.
Events (London Time):
CHE 07:15 Trade Balance (Oct)
SWE 08:30 Unemployment Rate (Oct)
ITA 09:00 Trade Balance (Sep) EUR-0.9bn
ITA 09:00 Trade Balance EU (Sep)
GBR 09:30 M4 Money Supply (Oct P)
GBR 09:30 PSNCR (Oct) GBP5.5bn
GBR 09:30 PSNB (Oct) GBP6.1bn
GBR 09:30 Retail Sales (Oct) 0.5%(2.9%)
USA 13:30 Initial Jobless Claims
CAN 13:30 Int'l Securities Transactions (Sep)
CAN 13:30 Leading Indicators (Oct)
CAN 13:30 Wholesale Sales (Sep)
USA 15:00 Leading Indicators (Oct)
USA 15:00 Philly Fed (Nov) 12
Tags: News, Main, Overnight, Market, Headlines
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Daily Market News
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Reason
Posted by:
Traders News Sub-Editor, 30.9.2009
30 September 2009
Market Headlines:
£ The BoE dampened expectations of a cut in the reserve remuneration rate; which helped stem speculative pressures on the pound, but sterling remains down as the market subscribes to Governor King's view that sterling weakness would be desirable
G20 IMF Global Financial Stability Report: the estimate of global bank losses was lowered to $3.4trl (2007-10) from $4.0trl estimated in April, reflecting higher securities values and a new methodology; US banks have recognized about 60% of expected writedowns versus 40% in the Eurozone/UK; the UK is the most susceptible to credit constraints
$ Fed's Plosser (non-voter): there are signs “that the economy is turning a corner” but it is not the time to exit accommodative policies; a double dip recession does not look likely right now but the risk exists; inflation expected to pick up in H2’10
$ US Fed's Fisher (non-voter) said it will be a long time before growth is strong enough to reduce excess capacity; a pickup in the pace of bank lending would be a key sign that the economy is improving
$ US S&P CaseShiller 20-city house prices fell at a slower pace of 13.3%YoY in July versus -15.4%YoY in June; on a monthly basis prices were up 1.6% versus +1.4% previously, marking a third consecutive gain
$ US consumer confidence fell to 53.1 in September versus the consensus forecast of 57.0 and a revised 54.5 in August (initially 54.1); the present situation index fell to 22.7 from 25.4; the expectations measure declined to 73.3 from 73.8
€ Eurogroup Chair Juncker said Eurozone potential growth will hover around 1.5% from 2010-2020; the US government should reiterate that a strong dollar is in the interest of the US economy
€ ECB's Liikanen: "Short Euribor rates are expected to rise steadily in 2010 and 2011 but remain low relative to recent years"
€ ECB's Constancio: "there are no inflationary risks in the near future and the withdrawal of exceptional measures has to be gradual, intensifying mainly in 2011”
€ Eurozone consumer confidence rose 3pts to -19 in September, matching the highest level since Sep’08; industrial confidence rose 1pt to -24 driven by a less pessimistic outlook for production and a better assessment of inventories; however, industrial confidence remains far below the level of Sep’08 (-12)
£ UK GfK consumer confidence jumped to -16 in September from -25 in August and was the highest since Jan’08; all components posted gains and the economic outlook for the next 12 months rose to the highest since May’98
£ UK net mortgage lending rose £1.0bn in August following a decline of £0.2bn in July (initially -£0.4bn); consumer credit fell £0.3bn in August for a second consecutive month
£ UK mortgage approvals stabilized at 52.3k in August, down just slightly from the 2009 high of 52.4k posted in July
£ UK August M4 money supply growth was revised down to 12.5%YoY in from 12.6% initially and was sharply down from +14.4% in July; M4 lending excluding securitisations and intermediate OFCs fell -0.5%MoM in August versus -0.1%MoM in July
£ UK final Q2 GDP was revised up to -0.6%QoQ from -0.7%QoQ before, but Q1 GDP was revised down to -2.5%QoQ (initially -2.4%); the data are unlikely to assuage the BoE's concerns about an excessive level of spare capacity in the economy
£ UK CBI distributive trades: reported retail sales balance jumped to +3 in September from -16 in August, highest since April (+3)
CNY The PBoC said it will "maintain ample liquidity in the banking system, and guide reasonable and appropriate money supply and credit growth" during Q4
The Day Ahead
The big event of the day is the ECB's 1yr LTRO auction. Based on yesterday's weekly MRO result, it is reasonable to expect a take of €100bn on the ECB's 1yr LTRO today, which is at the low end of analyst estimates and well below the €442.2bn taken at the first LTRO on 24 June but still sufficient to keep eonia depressed into year-end. Full preview provided in the next section. On the data front, the US ADP private sector employment report has the potential to prove highly market-moving ahead of Friday's official NFP report. Producer surveys suggest that companies are still cutting costs, though at a slower pace, which is contributing to a stabilisation in the pace of unemployment growth. The market expects ADP employment to fall at a slower pace of -200k in September versus -298k in August, which would mark the smallest decline since Jul’08. In policy events, ECB's Papdeomos (08:45), Weber (08:45), Noyer (10:30), and President Trichet (18:45) participate in a financial forum today. ECB's Orphinades and Fed's Kohn (voter) speak on exit strategies at 17:30. Fed's Lockhart (voter) speaks on the economic outlook today at 15:30 and Fed's Tarullo (voter) speaks on regulation at 19:30. In debt supply, Germany will auction €5bn in 2yr Schatz.
Markets
The global liquidity trade remains in place but there are growing signs of fatigue at current valuation levels as equities and credit have failed to push higher in spite of cyclical optimism, M&A news and ample liquidity in the market. There have been some suggestions that market caution is driven by the Fed's move to phase out its asset purchase and liquidity programs en route to beginning rate hikes next year. It's worth noting here that the Fed is managing its balance sheet in line with market uses, not against market needs so tightening is in the future. As a result, USD 3m Libor remains depressed at 0.28969%, in spite of yesterday's technical 7/10ths of a basis point rise at the quarter-end. The Fed fund rate for the December FOMC meeting is quoted at 19bps, while the US 10yr yield perforated the 3.30% mark again yesterday, falling to 3.274% through Monday's 5-month low before stabilizing at 3.313% last. Instead, market fears about the bandwagon rally coming to an abrupt end have increased in recent days as the US corporate earnings season and the US NFPs on Friday will put the equity valuations to the test. The behavioural economics of this is that the market is still learning how to spell the global recovery: financial valuations are trading a V-shape scenario, but the real activity data – outside China - are forming a U shape. This positive forward outlook implied in current financial valuations needs a continued string of positive surprises in the growth figures, especially those coming out of the US which have tended to disappoint recently. In the euro area, the big event of the day is the ECB's 1yr LTRO auction. Following the market's €66.77bn drawdown on yesterday's weekly MRO, our desk estimates that the current level of reserves in excess of the daily reserves requirement approaches €80bn. This implies that the take on the ECB's 1yr LTRO may come in at the low end of estimates at €100bn, which would be a reasonable result given that the market also gets a chance to renew funds on the maturing 3m LTRO today and the ECB has another 12m operation on the 16 Dec. Euro overnight rates are quoted at 0.55% on account of the quarter turn but the tom-next is at 0.35% and the spot-next is at 0.30%. Why is the market showing no concern? Based on these projections, the aggregate of ECB open market operations in the market over the year end will exceed €760bn which is more than enough to ensure that EUR OIS rates will remain depressed into 2010.
Tags: Daily, Market, Stocks, Money, News, Headlines, Se...
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Daily Market Strategy
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Reason
Posted by:
Traders News Sub-Editor, 29.9.2009
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Today's market movers
Today's economic calendar is crowded, both in Europe and in the US. The European Commission confidence indicators will take centre stage in the euroarea whilst the UK calendar includes the final estimate of Q2 GDP, along with the most recent information on the development of mortgage and retail activity. In the US, the Conference of Board consumer confidence index will provide further evidence on households’ sentiment after last week's U. of Michigan index was revised considerably higher.
The primary market will also be eyed today. In the Eurozone, the Italian BTPs auction takes centre stage at 10am. The Italian Tesoro announced the launch of the new 4.25% Mar 2020 for between EUR 4-5bn, along with the tap of the on-the-run 2.5% Jul 2012 and Jul 2016 CCT for between EUR 2-2.5bn and EUR 1.5-2.25bn respectively. Most of the Italian supply will be skewed at the long end of the curve then, confirming the recent trend of non-core EMU sovereign issuers that prefer to issue long-term debt in order to take advantage of more favourable funding conditions (see yesterday's OLO auction that saw EUR 1.205bn of Mar 2028, EUR 0.985 of Mar 2019 and only EUR 0.625bn of the Mar 2015). In the UK, the DMO re-opens its ultra-long nominal Gilt 4% Mar 2022 for GBP 3.75bn at 10:40 BST.
As for the EC confidence indicators, another modest increase in September is anticipated after the index rose for a fifth consecutive month in August. All the main components posted a solid upswing at the end of the summer, confirming the end of the deep recessionary path that has been seen since early 2008. In details, the headline index rose nearly 5 points to 80.6 from 76.0 in July and it runs more than 15 points above the March's record low.
In September, the monthly upswing is anticipated to be substantially milder than in the past 2-3 months, as already shown by a number of other confidence indicators. The call is for the economic sentiment index to rise to 81.3 in September whilst mkt consensus if for an increase to 82.2. industrial confidence is expected to rise to -25 in September from -26 in August whilst the services confidence index is expected to rise three points to -8. On the other hand, it is expected that the construction sentiment to deteriorate slightly given that housing activity is still under pressure in most of the EMU countries. In addition, the retail indicator may see a further decline given that retail activity was generally quite poor in the euroarea during the summer. Consumer confidence is expected to post another slight increase as news of further stabilization of the global economy seems to offset the negative effects of rising unemployment.
All in all, while the economic sentiment indicator is likely to continue to edge higher in the coming months, it is not expected to cross its long-run average of 100 for many months to come. Indeed, even if EMU activity is expected to rise a touch in H209, a sustainable recovery is not a done deal yet.
In the UK, the final release of Q2 GDP is expected to see another modest upward revision after the second estimate showed an upward revision to -0.7% from -0.8% q/q initially estimated. The call is for Q2 GDP to be revised up to -0.5% q/q as June's economic indicators seem to have been much stronger than what initially estimated. An upward revision would not be a surprise though as the BoE' King has already anticipated that Q2 activity might now looks a touch less bleak than previously estimated. Despite expectations of a slight upward revision, annual Q2 GDP growth is set to remain the weakest since the series began in 1955. Looking ahead, it seems like Q2 has been the last quarter of q/q contraction for UK GDP and survey indicators suggest that Q3 will actually see the economy start to grow again. A 0.3% q/q increase in Q3 is anticipated and a similar improvement also in Q4. Although a technical end to the recession may be around the corner, it will take a while to see the large UK output gap to return in positive territory.
Looking at today's UK main monthly indicators, mortgage approvals are expected to continue to edge higher in August, as suggested by both the Bank of England's latest Trend in Lending report and the BBA report. The forecast is for mortgage approvals to rise to 52k in August from 50.1k in July. This would be a touch lower than what was seen over the past six months, when approvals have been increasing on average by 3k a month.
All in all, mortgage activity is slowly recovering but mortgage approvals still remain well below their long-term average, signalling that the housing mkt has not regained all its strength yet. Data on July's net mortgage lending also confirmed that the UK housing mkt is still moribound. Indeed, the indicators fell for the first time since the series began in 1993, suggesting that UK households are very cautious and they prefer to pay down their mortgages rather than using their savings to increase their debt. On the supply side, negative mortgage lending could also be the confirmation of still tight credit conditions.
The September CBI distributive trade survey will shed some light on the development of UK retail activity. August's retail sales were sluggish as the end of the summer sales and unfavourable weather conditions weighed on retail activity. September was more favourable in terms of weather and a modest increase in activity is expected. However, the CBI index is likely to remain well in negative territory as the improvement in global demand in not strong enough to convince UK households to massively increasing their spending.
In the US, consumer confidence is expected to rise to 58 in September from 54.1 in August. The forecast has been revised after the University of Michigan index surprised on the upside in September, reaching the highest level since Jan 2008. US households seem to be optimistic on future activity despite the still depressed picture for the labour mkt and risks of a double-dip scenario for activity.
Tags: Daily, Market, Strategy
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Investor Responses (NY)
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Reason
Posted by:
Traders News Sub-Editor, 16.9.2009
Trying to make sense of the financial markets seems to be getting harder and harder.
Stocks and bonds have abandoned their inverse relationship and instead move higher at the same time. The dollar hit some pretty cheap levels and yet foreign institutions made a beeline to sell dollar denominated debt. No one has any great faith in the U.S. economic recovery and yet over $20 billion in fresh debt was issued in the U.S. corporate market Tuesday.
While we can't answer the question about why foreigners would issue dollar denominated debt when the dollar is on the ropes, the answer to the other issues seems clear.
"There is a wall of cash," that needs to be invested, one veteran analyst said.
"You can either accept zero or 25 basis points in a money market fund," he said, "or you can move out the curve and take on more risk."
That is clearly what is happening.
"Treasuries and corporates are benefitting from the demise of other markets like structured products and credit default swaps," a seasoned salesman said.
"If you are a pension fund, money manager or insurance company that has cash to invest you have no place else to go," he says.
The salesman said investors are comfortable putting money into sound, systemically safe, high grade credits where they can do their own research and earn substantially more than a cash or money market account.
That is no doubt why Treasuries hold in such a tight range, every dip is bought and the gobs of supply is greeted with glee not angst.
And it could also be the reason why stocks and bonds are going up together. If you like corporates, why not buy some stocks too?
Ironically, while people are scratching their heads about what is going on in the U.S. financial markets, things are just as the Federal Reserve wanted them to be.
"What is happening is just what the Fed hoped would happen," our seasoned analyst said.
"Investors move out the curve and take on more risk," he said. "And that helps the capital markets and corporate America and people get their confidence back."
"This is the opposite of the financial vortex we were in last year," he concluded.
Aha, now it all makes sense! And so let's not even talk about what problems could be lurking down the road from here!
The retail sales data Tuesday was a pleasant surprise prompting JP Morgan's economist Michael Feroli to says the "consumer found their sea legs."
August retail sales printed at +2.7% (+2.0% expected), ex-motor vehicles +1.1% (+0.4% expect), with motor vehicles sales +10.6% and gasoline station sales +5.1%.
Sales ex-motor vehicles and gas were +0.6 vs -0.4% in July, with gains in every component except furniture (-1.6%) and building materials (-1.2%).
The August sales rise was the largest since Jan'06, while the motor vehicle sales rise was the largest since Oct'01.
August PPI was +1.7% and core +0.2% (+0.1743% unrounded) as energy +8% on gains across categories. YOY PPI is -4.3% overall and +2.3% core, still modest. Food +0.4% on gains in eggs, cheese, fruits. Core was boosted by light trucks +0.8% (accounts for half the core gain), cars +0.7%, communications equipment +0.3% and pharmaceuticals +0.2%.
Do not expect the August surge in PPI to move into CPI, as Cash for Clunkers lowered auto prices and should offset the energy gain.
The NY Empire State September survey rose to 18.88 vs 12.08.
RBS Securities say, "Q3 real consumer spending will be up noticeably because of Cash for Clunkers, but ex-autos real outlays may be close to flat in the summer and Q4 real spending will be held back by the post-Clunker auto sales unwind. Thus, while these data are without a doubt stronger than expected and are very encouraging to our better-than-consensus forecasts for the recovery over the next year or two, we continue to believe that the consumer will trail rather than lead the recovery, and we will only be confident about the consumer when we see job growth and labor income gains, likely to be a story kicking in early 2010 (or very late this year at the earliest), not in Aug."
Nomura says there are two key factors in PPI: "First, auto manufactures have not likely benefited from falling commodity prices because many of their supply arrangements are negotiated with long-term contracts, some of which were set when commodity prices were very high. As those prices have declined auto manufacturers have therefore not experienced the windfall seen in other sectors. Second, given the currently low sales volume, some manufactures may not be able to maintain generous dealer incentives while still covering overhead costs. The removal of these discounts shows up as an increase in the producer price indexes. Inflation in the rest of the core PPI was moderate."
Tags: Stocks, Financial, Finance, Markets, Response, Re...
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Market News Headlines
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Reason
Posted by:
Traders News Sub-Editor, 14.9.2009
Headlines:
•President Obama will discuss the winding down of the government's involvement in the financial sector in a wide-ranging speech on Monday
•Fed and other central banks may adopt different strategies for ending monetary stimulus because they have diverging views on the role of bond purchases in stoking economic growth, the Bank for International Settlements said
•French Economy Minister Lagarde plans to extend billions of euros of loan guarantees to France's top banks for another year and is calling on them to provide action plans on financing the economy, a newspaper said
•New Zealand retail sales fell a deeper-than-expected 0.5% in July (est. +0.4%, June +0.1%), the sharpest fall since January
•South Korean Finance Minister said he saw an interest rate hike as premature although there was speculation on an exit strategy
Europe:
Two opinion polls said that British voters trust the main opposition Conservative Party with public services more than the ruling Labour Party, dealing a further blow to Prime Minister Brown.
British treasury minister Paul Myners said international bond markets were willing to continue their support, provided public finances were returned to sustainability once recovery was established.
Britain faces a double-dip recession if high government debt is tackled too soon through spending cuts, the Trades Union Congress said.
Interest in starting new UK banks has mounted sharply in recent months among overseas banks and other financial services firms but fear of tougher regulatory scrutiny is deterring would-be applicants.
http://www.ft.com/cms/s/0/c1d31ee4-a09b-11de-b9ef-00144feabdc0.html
Extra liquidity pumped into the eurozone banking system since the collapse of Lehman Brothers last year has probably generated an extra €900m ($1.5bn, £780m) in profits so far, according to calculations by Goldman Sachs.
http://www.ft.com/cms/s/0/51d8c270-a077-11de-b9ef-00144feabdc0.html
French Economy Minister Christine Lagarde plans to extend billions of euros of loan guarantees to France's top banks for another year and is calling on them to provide action plans on financing the economy, a newspaper said
US:
President Obama will discuss the winding down of the government's involvement in the financial sector in a wide-ranging speech on Monday in which he will try to reinvigorate stalled legislation on regulatory reform.
Fed and other central banks may adopt different strategies for ending monetary stimulus because they have diverging views on the role of bond purchases in stoking economic growth, the Bank for International Settlements said.
A key group of U.S. senators was "very close" to agreement on healthcare reform, one of its members said on Sunday, suggesting Congress was nearer to meeting President Obama's goal of passing a reform bill this year.
The survey of more than 22,000 people in 20 countries for the BBC World Service found that, on average, 60% favoured "significantly increasing government spending to stimulate the economy".
Australia and New Zealand:
New Zealand retail sales fell a deeper-than-expected 0.5%, the sharpest fall since January, official data showed. A Reuters poll had forecast a 0.5% rise for July.
Japan:
Former Japanese finance minister Hirohisa Fujii, who is tipped to be appointed to the same post again, said he did not rule out the possibility of issuing more government bonds to support the economy. He was cautious about the economic outlook of Japan, saying there is a possibility for the economy to fall again.
Asia and RoW:
South Korea's exports to China in August slid 10.3% from a year earlier, the smallest fall since a 2.6% loss in October 2008, the Korea Customs Service data showed. That compared with a 12.9 % fall in July.
South Korea's central bank chief said continuing economic and financial globalisation had complicated monetary policy in individual countries and required central banks to strengthen cooperation.
South Korean Finance Minister said he saw an interest rate hike as premature although there was speculation on an exit strategy.
China's corporate goods price index in August dropped 7.1% from a year earlier, compared with July's fall of 8.0%, the People's Bank of China said.
Events (London Time:
CHE 08:15 Producer & Import Prices (Aug)
EMU 10:00 Employment (Q2)
EMU 10:00 Industrial Production (Jul)
CAN 13:30 Capacity Utilization Rate (Q2)
NZL 23:45 Manufacturing Activity (Q2)
Tags: Main, Market, News, Headlines, UK, Japan, Asia, A...
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Daily Strategy - 14 September
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Reason
Posted by:
Traders News Sub-Editor, 14.9.2009
BST COUNTRY INDICATOR FOR LAST STRATEGY SURVEY
10:00 EC Employment (QoQ) 2Q -0.8% -- --
10:00 EC Employment (YoY) 2Q -1.2% -- --
10:00 EC Ind. Prod. sa (MoM) JUL -0.6% -0.2% -0.4%
10:00 EC Ind. Prod. wda (YoY) JUL -17.0% -- -16.8%
17:30 US Fed's Lacker Speaks
on Financial Regulation
in Charlotte - 18:00 - UK - BoE's Haldane to make speech
20:50 US Fed's Yellen speaks
in San Francisco on
Economic Outlook
Market Recap and Outlook
The bond market remained relatively strong over the past week, despite the solid upswing in equities. US Treasuries outperformed their European peers, mainly on the back of the strong results of last week's auctions The UK curve was little changed with no surprises coming from the MPC meeting whilst the performance across the EMU curve (swap rates) was mixed, with further richening of the short end led by cautious comments by ECB members and technical carry trades.
All in all, it looks like market participants have been generally reassured by the “support” message delivered by policymakers after the G20. The idea that the current “status quo” in terms of accommodative mix of policies will be maintained in the medium term is supporting risky assets and led to a sharp reduction in volatility. On the other hand, the uncertainties that surround future prospects provide relative support to govvies. Certainly, the bid for safe-haven assets has lost momentum in the past few sessions. However, it doesn’t look like the time for a sharp sell-off has arrived yet.
What has been learnt from fundamentals over the past few days? it seems as though nothing has really changed.
In the Eurozone, data on industrial activity have been mixed, signaling that manufacturing production has bottomed out in H1 but there are still many pockets of weakness to be repaired before the business cycle starts to assume a sustainable upward trend.
In the UK, the MPC voted to hold Bank Rate at 0.5% and to maintain the asset purchase programme at GBP 175bn last week, confirming the idea that policymakers are willing to present major changes only during Inflation Report months. The BoE did not present any plan to change the rate at which banks’ reserves are remunerated. More will be learnt about the possibility of introducing such a “structural” change when the MPC Minutes are released on Sept 23rd but the best guess is that the majority of MPC members prefer to assume a “wait and see” mode at the current juncture.
Last but not least, the Fed's Beige Book highlighted that economic activity continued to stabilize and the outlook remained “cautiously positive.”
All in all, the details of the report are consistent with the recent dataflow: positive surprises from manufacturing and housing activity indicators vs. sluggish performance for consumer spending due to the still weak labour market conditions.
This week's crowded economic calendar is expected to have mixed effects on govvies and US Treasuries might correct part of last week's auction-led rally. US headline inflation figures will be distorted by the mix of unwinding of positive base effects and recent increases in gasoline prices. However, the moderation in core inflation is expected to be supportive for bonds. On the other hand, the market might be hit by “less bad” news coming from retail sales in August (due to the cash-for-clunkers programme) and further increases in business confidence (Sept NY Empire and Philly Fed) and industrial production (also related to the auto industry).
In Europe, the bond market is expected to track the performance of USTs this week. If anything, should the negative tone prevail, a modest flattening across the EMU curve and a possibility of the re-steepening of the US coupon curve is expected. EMU 2-10s are back to historical high and the short end of the curve looks far too expensive at the current levels. With most of the carry-trade effects to wane in the near term, fundamentals will weigh on the short end of the EMU curve and now a good opportunity to enter structural flattening trades is seen. This week's economic calendar is supportive for some tightening in 210s spreads as EMU CPI figures will confirm that the slow convergence towards positive inflation has started in August and economic sentiment indicators are set to creep higher in September (ZEW survey), also boosted by the relative good performance of equities.
As for the UK economic calendar, this week's focus will be on August inflation and retail sales figures. The estimate for retail activity to have posted a modest contraction in August as weather conditions were not too favourable and the end of the summer discounts season, might have weighed on discretionary spending. On the inflation, some moderation in both headline and core CPI is widely expected in August and the impact on the market is likely to be limited.
Today's market movers
Today's economic calendar is extremely light. EMU industrial production figures will be the only noteworthy data out today before the string of relevant economic releases scheduled for the remainder of the week.
The forecast is for EMU IP to have contracted by 0.2% m/m in July, confirming that manufacturing activity has not gained momentum yet despite rising business confidence. In annual terms, EMU IP is set to contract at around -16.5% in July from -17% in June. IP data out in the main EMU countries depicted a mixed picture in July. On the positive side, Italian figures surprised on the upside rising 1 full pp. French IP was up only by a modest 0.1% whilst industrial activity contracted both in Germany and Spain.
Issuance wise, today's supply will come in the form of the Italian BTP 3.5% Jun 2014 and the mini-tender of the ultra-long Gilt Dec 2028. The Italian 5y benchmark will be offered for up to EUR 3bn. The paper lost some ground vs. surrounding issues over the past few sessions and it currently trades 4bp cheaper than the BTP Dec 2013 in the ASW spread space vs. the average 2.5bp the week before the tap was announced. The recent cheapening movement should support today's auction although market participants might be more focused on the 8.5-11y segment this week, with the launch of the new 10y BTP futures.
Tags: Daily, Strategy, Update
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