Wednesday, 20 August 2014

Stocks rise as US housing starts rebound, inflation slows

Stocks rose on Tuesday. The S&P 500 climbed 0.5 percent while the STOXX Europe 600 gained 0.6 percent.

The US dollar rose 0.3 percent against the euro as well as the yen.

Markets were boosted by better US economic data on Tuesday.

US housing starts rebounded in July, surging by 15.7 percent after falling in the previous two months. Building permits jumped 8.1 percent last month.

Meanwhile, US inflation slowed in July. Consumer prices rose 0.1 percent last month, down from 0.3 percent in June.

Data from the UK on Tuesday showed that inflation there fell even more sharply in July. The inflation rate fell to 1.6 percent last month from 1.9 percent in June after consumer prices fell 0.3 percent in July.

Annual house price inflation also slowed to 10.2 percent in June from 10.4 percent in May. Nevertheless, for the second quarter as a whole, the annual increase of 10.2 percent was the biggest since the third quarter of 2007.

Tuesday, 19 August 2014

Stocks rise with US homebuilder sentiment

Stocks rose on Monday. The S&P 500 gained 0.8 percent while the STOXX Europe 600 added 1.2 percent.

US Treasuries fell however, the 10-year yield rising five basis points to 2.39 percent. Brent crude fell 1.9 percent to a 14-month low and gold fell 0.5 percent for a second day of decline.

Helping to boost stocks on Monday was a report in the US showing that the National Association of Home Builders/Wells Fargo housing market index rose to 55 in August from 53 in July.

However, the UK housing market may finally have cracked. A report by Rightmove showed that asking house prices fell 2.9 percent in August, the sharpest pace of decline on record for the month of August.

Monday, 18 August 2014

Are central banks falling behind the curve?

The Federal Reserve places a great deal of emphasis on employment in determining when to remove monetary stimulus. And yet, despite considerable improvement in the United States labour market of late, there has been no move to actually remove stimulus.

A Bloomberg report last week pointed out the ambiguous employment situation that is complicating the Fed's policy outlook.

The U.S. labor market is looking a little surreal these days.

Take the number of workers filing claims for unemployment benefits. As a share of the population, it’s the lowest since at least 1967... Yet the ranks of the long-term unemployed remain larger than at any time before the 2007-2009 recession.

That leads to two starkly different views of the U.S. economy. In one, job growth is increasing along with inflation, leaving Yellen, now at the helm of the U.S. central bank, behind the curve with recession-era monetary policy still in place. The other view portrays a fragile recovery that owes its modest gains to the Fed’s near-zero interest rates. The job-market contrasts are dividing economy-watchers on when the Fed should start raising rates, which it hasn’t done since 2006.

While most of the economists cited by the report supported continued monetary stimulus, there is at least one dissenting view.

By pressing on with easy money policies in the face of such data, the Fed is playing “a very dangerous game,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “What are you waiting for? Everything to get back to the cyclical peak to take rates off of zero?”

If the Fed is behind the curve, it would probably not be the only central bank to be so.

Another Bloomberg report points out that the People’s Bank of China has historically cut interest rates only after the economy has weakened enough to drag down stock prices.

Indeed, even as investors await possible interest rate cuts from the PBC, China's property market already appears to be cooling. Average new home prices in China's 70 major cities fell 0.9 percent in July, according to Reuters calculations from official data published on Monday. This was the third consecutive monthly decline.

Saturday, 16 August 2014

US factory output jumps but consumer sentiment falls

US economic data on Friday were mixed.

Factory production jumped 1.0 percent in July, helping to push total industrial production up 0.4 percent.

However, the New York Federal Reserve's general business conditions index fell to 14.69 in August from 25.60 in July.

The producer price index for final demand rose 0.1 percent in July as the cost of energy products fell, offsetting an increase in food prices.

However, the Thomson Reuters/University of Michigan's consumer sentiment index fell to 79.2 in August from 81.8 in July.

The UK economy continued to show strong growth though. A report on Friday showed that its economy grew 0.8 percent in the second quarter from the previous quarter and 3.2 percent from the previous year, the fastest yearly growth since the end of 2007.

Investors were in no mood to celebrate that achievement though as escalating tension in Ukraine sent stocks down on Friday. The S&P 500, though, managed to recover most of its early losses to end less than 0.1 percent down.

US Treasuries rose, with the yield on the 10-year note falling 6 basis points to 2.34 percent. However, gold fell 0.7 percent.

Friday, 15 August 2014

Markets rise as eurozone economy stalls

Markets rose again on Thursday, the MSCI All-Country World Index and the S&P 500 each adding 0.4 percent.

European stocks also rose on Thursday. The STOXX Europe 600 gained 0.3 percent despite a report on Thursday showing that the eurozone economy stalled in the second quarter.

Germany's economy shrank 0.2 percent while France's stagnated.

Earlier, a report showed that Japanese core machinery orders rose 8.8 percent in June. While positive, this was just a partial recovery of the record 19.5 percent fall in May.

For the April-June quarter as a whole, core machinery orders fell 10.4 percent. Companies surveyed by the Cabinet Office forecast that core orders would rise 2.9 percent in July-September.

Elsewhere in Asia, the Bank of Korea cut its benchmark overnight inter-bank loan rate by 25 basis points to 2.25 per cent on Thursday. It was the first rate cut since May 2013 and comes after Finance Minister Choi Kyung-hwan warned last month that the national economy stood at a crossroads between "making a leap forward and falling into a recession".

Thursday, 14 August 2014

Markets rise amid weak economic data

Markets rose on Wednesday. The S&P 500 rose 0.7 percent while the STOXX Europe 600 rose 0.4 percent.

US Treasuries also rose, pushing the 10-year yield down 4 basis points to 2.42 percent.

Economic data on Wednesday had been mostly weak.

In the US, retail sales were flat in July, the weakest performance in six months, after a 0.2 percent rise in June.

In the euro area, industrial production fell 0.3 percent in June after falling 1.1 percent in May.

In China, bank lending plunged to 385.2 billion yuan in July from 1.08 trillion yuan in June. Industrial production rose 9.0 percent in July from the previous year, down from 9.2 percent in June, while retail sales growth slowed to 12.2 percent from 12.4 percent. Fixed asset investment rose 17.0 percent in the first seven months from the previous year compared to 17.3 percent for the first six months.

Japan's economy shrank 1.7 percent in the second quarter, its biggest contraction since the March 2011 earthquake.

And in the UK, average weekly earnings fell 0.2 percent in the April-June period compared to the previous year although the unemployment rate did ease to 6.4 percent in the three months to June from 6.5 percent a month earlier.