Friday, 28 February 2014

S&P 500 hits new high, Europe slips on Ukraine tension

US stocks rose to a record high on Thursday. The S&P 500 gained 0.5 percent to 1,854.29, completing its recovery from its tumble earlier in the year and ensuring that the bull market continues.

Stocks made a new high despite a report on Thursday showing that US durable goods orders fell 1.0 percent in January.

Other data from that report were positive though. Orders excluding transportation rose 1.1 percent and orders for non-defence capital goods excluding aircraft rose 1.7 percent.

In Europe, the STOXX Europe 600 fell 0.2 percent despite a report from the European Commission showing that its economic sentiment indicator for the euro area rose to 101.2 in February, the highest since July 2011, from 101.0 in January.

European stocks fell amid rising tension in Ukraine after armed men seized the regional government headquarters in Crimea on Thursday.

Thursday, 27 February 2014

US new home sales jump

Wednesday brought an end to the recent run of weak data from the US, with new home sales reportedly rising 9.6 percent in January to the highest level in more than five years.

Bill McBride tells us not to read too much into the January sales rate though.

Even though the Census Bureau reported that new home sales rebounded in January from the low December rate (and the December sales rate was revised up), January and December are seasonally weak months - and there is a large margin of error to the initial release - so I wouldn't read too much into one month of data. Also reported sales were only up 2% year-over-year (not much).

Nevertheless, he expects the US housing recovery to continue.

There was also good news from Germany on Wednesday. GfK's consumer confidence index rose to 8.5 going into March from 8.3 in February. The March reading is the highest since January 2007.

In the UK, fourth quarter growth was confirmed at 0.7 percent on Wednesday. The recovery broadened as business investment and trade picked up.

Also on Wednesday, Brazil raised interest rates by 25 basis points to 10.75 percent. The latest rate increase came after six consecutive 50-basis-point hikes.

Wednesday, 26 February 2014

Germany to lead eurozone growth in 2014, US shows more signs of slowing

The European Commission sees economic growth in Germany pulling away from France and Italy in 2014.

In its forecast released on Tuesday, the Commission sees the eurozone economy growing 1.2 percent this year. Germany is expected to grow 1.8 percent, France by 1.0 percent and Italy by 0.6 percent.

Also on Tuesday, Germany confirmed that its economy grew 0.4 percent in the fourth quarter.

Growth was driven by foreign trade, which added 1.1 percentage points to the growth rate. In contrast, domestic demand subtracted 0.7 percentage points.

Meanwhile, US data on Tuesday continued to show the economy losing momentum.

House price gains slowed at the end of last year, with the S&P/Case-Shiller 20-city home price index rising 0.8 percent in December, down from a 0.9 percent rise in November.

Consumer sentiment deteriorated in February, with the Conference Board's consumer confidence index falling to 78.1 from 79.4 in January.

Tuesday, 25 February 2014

US economy shows signs of slowing

Economic data on Monday continued to show signs of slowing for the US economy.

A preliminary reading from Markit showed that its US services sector PMI fell to 52.7 in February from 56.7 in January.

This pulled the composite PMI for this month down to 53.5 from 56.2 in January.

Adding to evidence that the US economy has slowed, the Chicago Federal Reserve reported on Monday that its national activity index fell to -0.39 in January from -0.03 in December. The three-month moving average fell to +0.10 from +0.26.

However, the Chicago Fed noted that the three-month reading suggests that growth remained “above its historical trend” and that inflationary pressure is “limited”.

Elsewhere in the world, inflationary pressure in the euro area has also been limited. A report from Eurostat on Monday showed that consumer prices in the region rose at an annual rate of 0.8 percent in January, the same rate as in December.

Meanwhile, the outlook for the euro area's largest economy, Germany, remains positive. The Ifo institute reported on Monday that its business climate index rose to 111.3 in February from 110.6 in January, the fourth monthly gain and the strongest reading since July 2011.

Monday, 24 February 2014

Chinese stocks fall on report of lending curbs

Stocks in China fell sharply on Monday. The Shanghai Composite Index fell 1.8 percent while the CSI 300 tumbled 2.2 percent.

Chinese stocks fell after the Shanghai Securities News reported on Monday that Industrial Bank and other banks may have stopped extending loans to property developers and tightened lending to other property-related sectors such as steel, cement and construction.

The news comes as another report showed that the Chinese property market may already be cooling.

Reuters calculations based on data from the National Bureau of Statistics released on Monday showed that average new home prices in China's 70 major cities rose 9.6 percent in January from a year earlier, slower than the previous month's 9.9 percent rise.

Saturday, 22 February 2014

S&P 500 retreats after nearing record high

US stocks closed in on a new all-time high on Friday but failed to achieve it. The S&P 500 ended the day down 0.2 percent after having come within three points of a new record.

A report on Friday had shown that existing home sales in the US fell 5.1 percent in January. Inventory rose to 4.9 months of sales from 4.6 at the end of December.

Meanwhile, in the UK, retail sales fell 1.5 percent in January. The decline was the biggest since April 2012 but sales had jumped 2.5 percent in December.

Friday, 21 February 2014

US manufacturing and leading economic indices rise

US economic data on Thursday were positive.

Markit's US manufacturing PMI rose to 56.7 in February, its highest since May 2010, from 53.7 in January.

The Conference Board's index of US leading indicators rose 0.3 percent in January.

Initial claims for unemployment benefits fell by 3,000 to 336,000 last week.

The consumer price index rose 0.1 percent in January, less than the 0.2 percent increase in December. However, the 12-month increase was 1.6 percent, the biggest since July.

Economic data elsewhere on Thursday were not as positive.

In the euro area, Markit's composite index fell to 52.7 in February from 52.9 in January. The services index rose to 51.7 from 51.6 but the manufacturing index fell to 53.0 from 54.0.

In addition, the consumer confidence index for the euro area fell to minus 12.7 in February from minus 11.7 in January.

In China, a preliminary reading showed that HSBC's manufacturing PMI fell to 48.3 in February from 49.5 in January.

Thursday, 20 February 2014

Japan's trade deficit hits record, US housing starts plunge

Japan's trade deficit widened to yet another record in January.

A report on Thursday showed that the deficit hit 2.79 trillion yen last month as exports rose 9.5 percent from a year ago while imports surged 25.0 percent.

Energy was the main driver of the surge in imports. Crude oil imports rose 28.1 percent from a year earlier while imports of liquefied natural gas increased 21.4 percent.

Meanwhile, in the US, Wednesday had brought more bad news for the housing sector.

Housing starts fell 16 percent in January, the biggest decline since February 2011. The fall was mainly attributed to bad weather.

Building permits fell 5.4 percent.

Another report from the US on Wednesday showed that producer prices rose 0.2 percent in January.

Wednesday, 19 February 2014

BoJ boosts loan schemes, PBC drains liquidity

The two biggest Asian central banks were in the news on Tuesday.

The Bank of Japan left its monetary policy unchanged after its meeting on Tuesday but extended its special loan facilities by one year while doubling the funds available to banks under two of the facilities.

The BoJ kept its assessment that the Japanese economy is recovering moderately.

The People's Bank of China went in the opposite direction on Tuesday, selling repurchase contracts for the first time since June and draining funds from the banking system.

Meanwhile, the Bank of England appears unlikely to tighten monetary policy soon after a report on Tuesday showed that UK inflation fell to 1.9 percent in January from 2.0 percent in December. It was the first time in over four years that the inflation rate has fallen below the BoE's target.

In contrast, other data on Tuesday showed that house prices in the UK rose by 5.5 percent in the 12 months to December, up from 5.4 percent in November.

In the US, however, the housing market has cooled with the weather. The National Association of Home Builders/Wells Fargo housing market index fell to 46 in February from 56 in January.

Also deteriorating in February was German investor confidence. The ZEW index of investor and analyst expectations fell to 55.7 this month from 61.7 in January.

Tuesday, 18 February 2014

Japan's economy grows less than expected

Japan's economy maintained growth in the fourth quarter of 2013 but at a slower-than-expected rate.

The economy grew 0.3 percent last quarter, the same rate as in the third quarter but below economists' consensus estimate of 0.7 percent.

Capital expenditure rose 1.3 percent, the fastest growth in two years, and private consumption grew 0.5 percent.

However, net exports subtracted 0.5 percentage point from growth.

Elsewhere in Asia, China released data over the weekend showing that banks lent 1.32 trillion yuan worth of new local-currency loans in January, the most in four years and nearly three times December's level.

Total social financing hit 2.58 trillion yuan, double the previous month's figure.

Monday, 17 February 2014

S&P 500 back near high after blip in uptrend

Stocks in the United States rose last week to recover most of the losses in January and early February.

After reaching an all-time high of 1,848.38 on 15 January, the Standard & Poor's 500 Index had fallen 5.8 percent to close at 1741.89 on 3 February following concerns over emerging markets.

Since then, however, US stocks have bounced back. The S&P 500 added 2.3 percent last week to close at 1,838.63.

The benchmark index is now up 5.6 percent from its low in early February and is less than 10 points away from its all-time high.

As the following chart from shows, the fall last month now looks like just one of several relatively minor blips in the market's longer-term uptrend.

Saturday, 15 February 2014

S&P 500 edges closer to all-time high as eurozone economy accelerates

Stocks rose on Friday. The S&P 500 climbed 0.5 percent to come within 10 points of its all-time high. The STOXX Europe 600 rose 0.6 percent and the MSCI Emerging Markets Index gained 1.3 percent.

US economic data on Friday were mixed. Factory production fell 0.8 percent in January, the biggest drop since May 2009. The Thomson Reuters/University of Michigan index of consumer sentiment came in unchanged in February though at 81.2.

In the euro area, a report on Friday showed that the economy grew 0.3 percent in the fourth quarter, up from 0.1 percent growth in the third quarter. For 2013 as a whole, the economy contracted 0.4 percent.

In Asia, China reported on Friday that its inflation rate was unchanged at 2.5 percent in January while India reported that its inflation rate fell to 5.05 percent in January from 6.16 percent the previous month.

Friday, 14 February 2014

Market correction may have been buying opportunity as S&P 500 bounces back towards all-time high

Business Insider cites David Rosenberg in saying that the recent fall may have taken stocks down enough to buy.

“So the big problem was sentiment and valuations, but both have started to move towards more attractive points,” Rosenberg writes. “Liquidity and economic growth remain the big-picture fundamentals that will once again render this brief corrective phase as another in the long list of buying opportunities we have seen for the past four-plus years.”

There are signs that other investors also think that the correction may be brief, notwithstanding the mixed performances in markets on Thursday.

The STOXX Europe 600 fell 0.2 percent and the MSCI Emerging Markets Index fell 0.6 percent. The US 10-year Treasury yield fell three basis points to 2.73 percent.

However, after early losses, the S&P 500 managed to rebound and finish the session up 0.6 percent.

The rise was remarkable considering that US economic data on Thursday were disappointing.

Retail sales fell 0.4 percent in January after having fallen 0.1 percent in December. The decline last month was mostly attributed to bad weather.

Also, initial claims for unemployment benefits increased by 8,000 last week to 339,000.

The rise on Thursday means that the S&P 500 has now rebounded 5.1 percent from its recent low and is just 1 percent below its all-time high.

Thursday, 13 February 2014

Stocks and economic data mixed

Global stock markets were mixed on Wednesday. European and emerging-market stocks rose but US stocks fell to end their best four-day rally in a year.

In currency markets, the euro fell 0.3 percent against the US dollar after ECB Governing Council member Erkki Liikanen's comment on Tuesday that negative interest rates are a policy option for the European Central Bank.

However, the pound rose 0.8 percent after a report on Wednesday showed that the Bank of England has revised up its growth forecast for 2014 to 3.4 percent from 2.8 percent.

Economic data on Wednesday were mixed.

China reported that its trade surplus surged in January. Exports jumped 10.6 percent from a year ago while imports rose 10.0 percent.

However, in Japan, core machinery orders fell 15.7 percent in December, the most since 1998, and the tertiary industry index fell 0.4 percent.

In the euro area, industrial production fell 0.7 percent in December after having risen 1.6 percent in November.

Wednesday, 12 February 2014

Yellen to maintain taper, stocks rise despite “scary” chart

New Federal Reserve Chairman Janet Yellen told a Congressional committee on Tuesday that she intends to maintain her predecessor’s plan to taper the central bank's pace of bond purchases.

The comment helped push US Treasuries down on Tuesday, the 10-year yield rising six basis points to 2.73 percent.

However, US stocks rose, the S&P 500 rising 1.1 percent.

Stocks rose despite a “scary” chart that has been making the rounds on Wall Street. As noted by Mark Hulbert, the chart shows that the market's recent gyrations have been very similar to those made just before the 1929 crash.

Tuesday, 11 February 2014

Birinyi sees S&P 500 at 1,900 by July

Stocks were little changed on Monday.

The S&P 500 rose 0.2 percent and the STOXX Europe 600 rose 0.1 percent.

However, the MSCI Emerging Markets Index fell 0.2 percent.

Despite the recent volatility in markets, Laszlo Birinyi thinks that the S&P 500 will reach 1,900 by July. From Bloomberg:

Birinyi, the founder of Birinyi Associates Inc. and one of the first analysts to advise clients to buy when stocks were bottoming after the 2008 financial crisis, said in a phone interview Feb. 7 that the benchmark gauge for U.S. equities will increase almost 6 percent by July. It fell 5.8 percent in the three weeks starting Jan. 15, losses he said signal healthy skepticism that set the stage for more gains.

There is also optimism in the euro area. Sentix reported on Monday that its index of investor sentiment in the euro area rose to 13.3 in February from 11.9 in January.

Monday, 10 February 2014

Japan may need to ease monetary policy further even as current account deficit hits record

A Bloomberg article suggests that the Bank of Japan may need to ease monetary policy further.

The Bank of Japan’s record policy easing is dwarfed by the Federal Reserve’s efforts, showing Governor Haruhiko Kuroda has plenty of room to expand stimulus after this year’s surge in the yen.

The CHART OF THE DAY shows the BOJ’s bond-buying program, launched in April, spurred growth in the monetary base that has now more than doubled since the 2008 financial crisis. That’s well behind the Fed’s quantitative easing, which has more than quadrupled the U.S. money supply. The lower panel has the yen strengthening more than the dollar over the period against peers as tracked by Bloomberg Correlation-Weighted Indexes.

“If the BOJ wants to achieve its inflation target, it needs to weaken the yen further,” said Toru Suehiro, a market economist in Tokyo at Mizuho Securities Co. “That will require a step up in stimulus. Compared with the U.S., the pace of growth of the monetary base isn’t that high.”

Japan, US Monetary Bases

Indeed, a report on Monday showed that the Japanese economy may have weakened in January. The Cabinet Office's economy watchers' survey showed that the current conditions index fell to 54.7 last month from 55.7 in December while the future conditions index tumbled to 49.0 from 54.7.

Unfortunately, further monetary easing and yen weakening could exacerbate the deterioration in Japan's current account balance. Another report on Monday showed that Japan's current account surplus shrank to a record low in 2013, with the December balance hitting a monthly record deficit of 638.6 billion yen.

Higher cost of fuel imports resulting from the weak yen has already pushed the annual trade balance to a deficit of 10.6 trillion yen, double that of the previous year.

Saturday, 8 February 2014

Markets rise, US unemployment falls

Markets rallied again on Friday. The S&P 500 rose 1.3 percent, the STOXX Europe 600 rose 0.7 percent and the MSCI Emerging Markets Index rose 0.9 percent.

Bonds joined the rally on Friday. US ten-year Treasury yields fell two basis points to 2.68 percent while German 10-year yields fell three basis points to 1.66 percent.

Markets rallied on Friday amid mixed economic data.

In the US, employment rose a disappointing 113,000 in January but the unemployment rate fell to 6.6 percent, the lowest since October 2008.

In Germany, industrial production fell 0.6 percent in December, exports fell 0.9 percent and imports fell 0.6 percent.

However, in the UK, industrial production rose 0.4 percent in December while the trade deficit plunged after exports rose 2.7 percent and imports fell 5.2 percent.

In China, the HSBC/Markit services PMI fell to 50.7 in January from 50.9 in December.

However, in Japan, the leading economic index rose to 112.1 in December from 111.0 in November while the coincident index rose to 111.7 from 110.7.

Friday, 7 February 2014

Stocks rise as ECB signals readiness to act

Global stocks rallied on Thursday. The S&P 500 Index rose 1.2 percent and the STOXX Europe 600 rose 1.5 percent, the best gains of the year for both. The MSCI Emerging Markets Index rose 1.4 percent.

The European Central Bank had left monetary policy unchanged at its meeting on Thursday but signalled its readiness to increase stimulus soon. Bloomberg reports:

European Central Bank President Mario Draghi said the ECB could take action to counter low inflation as soon as next month, when more data on the euro area’s economy will be available.

“We are willing and we are ready to act,” Draghi said in Frankfurt today after the ECB left its benchmark interest rate on hold at a record-low 0.25 percent. “The reason for today’s decision not to act has really to do with the complexity of the situation that I described and the need to get more information.”

European economic data on Thursday provided little urgency for action from the ECB.

German factory orders fell 0.5 percent in December. However, orders were 6.0 higher than a year ago after having jumped 2.4 percent in November.

The Bank of England also left monetary policy unchanged on Thursday after its meeting.

Meanwhile, in the US, a report on Thursday showed that the trade deficit increased in December after exports fell 1.8 percent and imports rose 0.3 percent. That still left the trade deficit for the whole of 2013 at its smallest since 2009.

Thursday, 6 February 2014

Markets mixed on Wednesday as investors see declines as temporary

Markets turned in mixed performances on Wednesday. The STOXX Europe 600 rose 0.1 percent but the S&P 500 fell 0.2 percent and the MSCI Emerging Markets Index fell 0.1 percent.

The fall in US stocks did not help Treasuries. US ten-year Treasury yields rose four basis points to 2.67 percent on Wednesday.

Most analysts cited by Bloomberg remain sanguine about markets.

The stock market’s decline this year is healthy and the S&P 500 probably will end 2014 higher, Leon Cooperman, chairman of hedge fund Omega Advisors Inc., said on Bloomberg Television.

BlackRock Inc. Chief Executive Officer Laurence D. Fink said in a separate interview that the recent market decline is a temporary setback as opposed to a departure from current economic growth.

“I look at this as a good old-fashioned correction,” Fink said today during an interview with Erik Schatzker and Stephanie Ruhle on Bloomberg TV’s “Market Makers.” Fink said BlackRock isn’t seeing long-term investors change their behavior.

But the outlook could change if markets continue to weaken.

The market may “unravel quickly” if the major indexes trade lower this week, Tom DeMark, the chief executive officer of DeMark Analytics LLC, said today in an interview on CNBC. If stocks fall today and open lower and trade lower tomorrow, he said, stocks are likely to continue falling regardless of Friday’s jobs data.

Economic data on Wednesday were also mixed.

In the US, private employers added 175,000 jobs in January, the fewest since August, but the Institute for Supply Management's services index rose to 54.0 last month from 53.0 in December.

In the euro area, retail sales fell 1.6 percent in December but Markit's services index rose to 51.6 in January from 51.0 in December, helping to push the composite index to 52.9 from 52.1.

In the UK, Markit's services index fell to 58.3 in January from 58.8 in December but remained well above the 50 mark indicating growth.

Wednesday, 5 February 2014

US stocks rebound as investors see buying opportunity

Stocks made a small rebound in the US on Tuesday. The S&P 500 rose 0.8 percent after having fallen 2.3 percent on Monday.

US stocks rose despite a report showing that factory orders fell 1.5 percent in December. Excluding transportation, orders actually rose 0.2 percent.

Indeed, some investors think the latest market declines represent yet another buying opportunity. From Bloomberg:

“This is a real bull market,” [Michael] Shaoul, whose assets under management have risen to $21 billion from $400 million in 2008, said in a phone interview. “What happens in real bull markets is they do fine, and then they are occasionally interrupted by an exogenous shock...”

“This episode will have a distinct beginning, middle and end ... The end of it will be a significant buying opportunity in the U.S...”

“Every time it goes down you always wonder, ‘What the heck? Is it going to stop?’” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $359 billion. “I like buying on this fear of a crisis in the emerging world.”

Tuesday, 4 February 2014

Markets fall amid mixed manufacturing reports

Markets took another beating on Monday. The S&P 500 fell 2.3 percent, the STOXX Europe 600 fell 1.3 percent, the Nikkei 225 fell 2.0 percent and the MSCI Emerging Markets Index fell 1.1 percent.

Money flowed into safe havens instead. US ten-year Treasury yields fell seven basis points to 2.57 percent while gold climbed 1.3 percent.

The uncharacteristically bad fall in the US stock market was exacerbated by surprisingly weak economic data. A report from the Institute for Supply Management on Monday showed that its manufacturing PMI fell to 51.3 in January, lower than the most pessimistic forecast in a Bloomberg survey of economists, from 56.5 in December.

However, another report on Monday showed that construction spending in the US rose 0.1 percent in December.

In Europe, the UK manufacturing PMI also fell to 56.7 in January from 57.2 in December but the eurozone manufacturing PMI rose to 54.0 from 52.7.

In China, recent manufacturing data had shown signs of slowing. Data on Monday showed that services activity there is also slowing. The National Bureau of Statistics said the official non-manufacturing PMI fell to 53.4 in January from 54.6 in December.

Monday, 3 February 2014

China's manufacturing slows at start of 2014

China celebrated the start of the Year of the Horse last week but its economy may have started to slow to a trot last month.

A report from Markit Economics last week had shown that the HSBC manufacturing purchasing managers index for China fell to 49.5 in January from 50.5 in December, indicating a contraction in the sector.

The official PMI from the National Bureau of Statistics and China Federation of Logistics and Purchasing released over the weekend was slightly less downbeat, falling to 50.5 last month from 51.0 in December.

A possible slowdown in China's economy has been cited by some economists as one of the reasons for the recent turmoil in emerging markets. If correct, the latest data on Chinese manufacturing activity does not bode well for emerging markets this week.

Meanwhile, data on the United States economy last week were mixed.

An advance estimate of real gross domestic product from the Commerce Department showed that the US economy grew at an annualised rate of 3.2 percent in the fourth quarter. While slower than the 4.1 percent growth rate in the third quarter, it was still better than the 1.8 percent average rate for the first half of the year.

Data on US consumer confidence last week were mixed. The Conference Board's consumer confidence index rose to 80.7 in January from 77.5 in December but the Thomson Reuters/University of Michigan consumer sentiment index fell to 81.2 from 82.5.

However, other reports last week showed that new home sales in the US fell 7.0 percent in December, pending home sales fell 8.7 percent and durable goods orders fell 4.3 percent.

Elsewhere, the European Commission reported last week that its economic sentiment indicator for the euro area rose to 100.9 in January, the highest reading since July 2011, from 100.4 in December.

In Japan, a report last week showed that the Markit/JMMA manufacturing PMI rose to 56.6 in January, the highest level since February 2006, from 55.2 in December.

Saturday, 1 February 2014

Stocks and emerging market currencies fall

Market nervousness returned on Friday as stocks and emerging-market currencies fell again. The S&P 500 fell 0.7 percent, the US 10-year Treasury yield fell four basis points to 2.65 percent and the yen climbed 0.5 percent against the US dollar for its biggest monthly advance since 2012.

Economic data on Friday were mixed.

In the US, consumer spending rose 0.4 percent in December but personal income was flat.

Also, the Thomson Reuters/University of Michigan consumer sentiment index fell to 81.2 in January from 82.5 in December and the Institute for Supply Management-Chicago business barometer fell to 59.6 this month from 60.8 in December.

In the euro area, the inflation rate fell to 0.7 percent in January from 0.8 percent in December but the unemployment rate was unchanged at 12.0 percent in December.

The region's largest economy, Germany, saw retail sales fall 2.5 percent in December.

However, in the UK, GfK's consumer confidence index rose to -7 in January, its highest reading since September 2007, from -13 in December.

In Japan, consumer prices excluding fresh food rose 1.3 percent in December from the previous year. For 2013 as a whole, prices were 0.4 per cent higher than the previous year, marking the first annual increase since a 1.5 per cent rise in 2008. The increase was largely driven by higher energy cost.

Other reports on Friday showed that Japan's factory output rose 1.1 percent in December, household spending rose 0.7 percent and the unemployment rate hit a multi-year low of 3.7 percent.