Following a fairly sharp (circa 10 per cent) run up over the last month or so, crude prices continued to ease overnight. The Brent and WTI were off almost two per cent to $121.6 and $106.6 respectively. There are several factors at play here, one is the general expectation that oil supplies into the US are rising, the second is a report showing durable goods orders fell sharply in January, while the third is the fact that prices have had a pretty decent run and so some profit taking was probably in store.
As for those orders, they were down some four per cent in the month which was well below the consensus forecast for a one per cent fall and the largest drop in three years. Worrisome? Maybe, but orders have been quite strong for the better part of a year now, so a pull-back isn’t completely unexpected and at this point I wouldn’t think it is anything other than a pull-back.
In any case there was some better news from the lower tier indicators with the Richmond Fed manufacturing index spiking up to 20 in February from 12 the month prior (and an average of -1), while consumer confidence shot up 6 points to 70.8 in February, although confidence is still well below average (91). Nevertheless, while it wasn’t uniformly strong, that data probably did help prevent a broader based wailing and gnashing of teeth, and commodities elsewhere pushed higher. Gold, for instance, is up $12 to $1784, silver is 4 per cent higher, while copper is up 0.5 per cent.
In the equity space a modest, very modest, bid was applied in Europe with the major indexes there up 0.6 per cent on the Dax, 0.4 per cent on the CaC and 0.2 per cent on the FTSE. In the US, equities are a little softer but still bid as I write. The S&P has been bouncing around zero and is currently up 0.2 per cent (1369). Tech, health care and consumer services are the key outperformers at this stage with energy and utilities the main deadweights. Elsewhere, the Dow reached a milestone, closing up 24 points higher to 13005, the first time it has finished above the 13000 mark since May 19, 2008, which was almost four months before the fall of Lehman Brothers and the start of the ensuing global financial crisis. Meanwhile, the Nasdaq was 0.7 per cent higher (2987), while the SPI was 0.3 per cent higher.
In the debt space there wasn’t much action to talk about. At least on treasuries, with the 10-year yield little changed from 1630 AEDT at 1.93 per cent on a 4 basis point range. The 5-year yield was down a couple of basis points to 0.835 per cent, while the 2-year yield was unchanged at 0.28 per cent. Aussie futures weren’t any more exciting with the 3s and the 10s both unchanged from 1630 AEDT at 96.39 and 95.97.
European bonds were more exciting and I’m very surprised that bonds still managed to push higher (albeit modestly) after those German CPI figures. CPI was much stronger than expected, rising 0.9 per cent in February ( 0.5 per cent expected) with the annual rate rising to 2.5 per cent from 2.3 per cent. In Italy the 2-year yield fell 22 basis points to 2.43 per cent, while the 10-year was off seven basis points to 5.35 per cent, while in Spain the 2-year was off eight basis points to 2.44 per cent and the 10-year rose two basis points to 5.03 per cent.
Not much else really. The European business climate index rose to -0.18 from -0.21 (average -0.05), while US house prices fell 0.5 per cent in December according to S&P case Shiller. Prices are down 4 per cent year-on-year.
We see a fair bit of data for Australia today, the key economic release is the construction work done figures at 1130 AEDT, but this is accompanied by the monthly retail sales figures and also the RBA’s credit numbers. I talked about the investment and retail numbers on Monday so won’t go over it again here, suffice to say all three numbers are expected to be soft with construction forecast to fall 0.8 per cent after a 12.5 per cent fall. Retail is forecast at 0.3 per cent for January. Otherwise we get South Korean industrial production at about 10am, and the Kiwi’s put out the NBNZ activity outlook at 1100 AEDT. Later this afternoon it's worth checking out India’s GDP figures at 1630 AEDT, while tonight we see the ECB’s second LTRO, Germany’s unemployment figures and eurozone CPI (January).
As far as the US is concerned, they put out the second estimate of fourth-quarter GDP. The consensus is that GDP was unchanged at 2.8 per cent.
Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.
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