GLOBAL NEWS FRIDAY, JANUARY 23, 2015 U.S. existing home sales expected to show some improvement in December but remain well below 2013’s 5-year high – The market is expecting today’s Dec existing home sales report to show a +3.0% increase to 5.08 million, reversing about one-half of November’s decline of -6.1% to 4.93 million. U.S. existing home sales posted a 5-year high of 5.38 million units in July 2013 but have since consolidated moderately below that level. U.S. home sales have been held in check by slow wage growth and the sharp increase in home prices in the past 3 years. However, U.S. home sales remain generally firm due to strong consumer confidence and low mortgage rates. Markit U.S. manufacturing PMI expected to stabilize after 4-month decline -- The market is expecting today’s preliminary-Jan Markit U.S. manufacturing PMI to edge higher by +0.1 point to 54.0, stabilizing after December’s -0.9 point decline to 53.9. U.S. LEI expected to show continued strength -- The market is expecting today’s Dec leading indicators report to show another solid increase of +0.4% m/m, adding to the +0.6% increase seen in November. The LEI has been particularly strong in the past three reporting months with increases of +0.8% in Sep, +0.6% in Oct, and +0.6% in Nov. Larger-than-expected QE package is a positive for global stocks -- The European Central Bank yesterday announced a QE package of 60 billion euros per month, which was larger than market expectations of 50 billion euros per month. In addition, the ECB said the program would last from March 2015 through September 2016, thus totaling about 1.1 trillion euros. That is much larger than the 500 billion euro program that was expected by most market participants as recently as last week. The ECB’s 60 billion euro per month program will involve the purchase of 45 billion euros of sovereign bonds, 5 billion euros of securities of European institutions, and 10 billion euros of covered bonds and asset-backed securities. The other positive twist was that ECB President Draghi indicated that QE will be open ended and could extend past Sep 2016 if the ECB has not met its inflation goal. Mr. Draghi said that the asset purchases “are intended to be carried out until end-September 2016 and will in any case be conducted until we see a sustained adjustment in the path of inflation.” U.S. and European stocks rallied on the ECB’s larger-than-expected QE program and the open-ended nature of QE. The ECB is forecasting that the QE program will boost in¬flation by +0.4 points in 2015 and by +0.3 points in 2016. That might get the current core inflation rate up to a more comfortable level in the mid 1% area by late 2016 from its current level of +0.8% y/y. The ECB’s larger-than-expected QE package should provide support for the U.S. and European stock markets going forward. The ECB’s purchases will likely push European bond yields even lower, thus dragging down U.S. yields as well since there will be increased private demand for higher-yielding U.S. Treasury securities. The ECB’s QE package will also provide an ongoing bearish factor for the euro since the Fed as soon as mid-2015 may start raising interest rates, thus attracting hot money into the U.S. Markets are not too worried as yet about Sunday’s Greek election -- The markets have yet to express much concern about Sunday’s Greek election and the likelihood that the anti-austerity Syriza party will win the election and take control of the government. That will result in considerable uncertainty as Greece risks losing its European bailout package, which would result in another sovereign default, the loss of ECB liquidity support for Greek banks, and the possible exit of Greece from the Eurozone altogether. The ECB said yesterday that it will not be buying Greek bonds as part of its QE program until July at the earliest since the Greek bailout program is currently under review and since the ECB would own more than its limit of 33% of Greek bonds if it were to buy Greek bonds now. That put even more pressure on Greek voters and politicians to toe the Eurozone line if Greece expects continued help. The markets have yet to express much concern about the Greek situation since the markets are assuming that after a large amount of bluster, the Syriza party will fall into line. However, there is plenty of room for unintended disasters in the meantime. Market Recap • The ECB said it will purchase 60 bln euros per month of assets, including private and public debt, starting in Mar until Sep 2016 as part of a QE program worth around 1.1 trillion euros in an attempt to stave off deflation and revive the Eurozone economy. • U.S. weekly initial unemployment claims fell -10,000 to 307,000, less than expectations of -16,000 to 300,000. Weekly continuing claims unexpectedly rose +15,000 to 2.443 million versus expectations for a decline of -24,000 to 2.400 million. • Eurozone Jan consumer confidence rose +2.4 to -8.5, stronger than expectations of +0.4 to -10.5 and the highest in 6 months. • Market closes • Stock Market -- The S&P 500 index on Thursday rose to a 1-1/2 week high and closed higher: S&P 500 +1.53%, Dow Jones +1.48%, Nasdaq +1.87%. Bullish factors included (1) carry-over support from a rally in European stocks to a 7-month high after the ECB announced a 60 billion euro-per-month QE program, more than expectations of 50 billion euros per month, and (2) strong Q4 earnings results after Southwest Airlines, Union Pacific and other companies reported better-than-expected earnings estimates. Stocks shook off the U.S. weekly initial unemployment claims of decline -10,000 to 307,000, which was less than expectations of -16,000 to 300,000. • Interest Rates --. Closes: TYH5 -10.00, FVH5 -6.00. • Forex -- Dollar index +1.173 (+1.26%), EUR/USD -0.02443 (-2.10%), USD/JPY +0.531 (+0.45%). • Metals -- Closes: GCG5 +7.0 (+0.54%), SIH5 +0.147 (+0.81%), HGH5 -0.0340 (-1.30%). • Energy -- CLH5 -1.47 (-3.08%), RBH5 -0.0013 (-0.10%).
Posted on: Fri, 23 Jan 2015 07:00:22 +0000
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