US Market US markets showed some relief on Monday, with stocks partially recovering losses seen last week. Over the weekend headlines brought further worrying news about Ukraine, but market reaction was muted at least for the day. On the positive side, US industrial production grew 0.6%, above consensus, supporting sentiment by suggesting improvement in activity ahead. US industrial production surprised to the upside and rose 0.6% mom in February, against market consensus expectations of 0.2% mom. The gain was entirely driven by the core manufacturing category, which rose +0.8% (vs. consensus +0.3%), largely reversing Januarys sharp weather-related drop. Motor vehicles and parts posted an 4.8% increase, bringing total vehicle production to 11.4mn units at an annual rate. Apart from manufacturing, utilities output edged down 0.2% despite the colder-than-normal weather, while mining output edged up 0.3%. Both US housing starts and building permits climbed above 1 million (annual rate) late in 2013. However, both measures fell below that pace in January. Disruptive winter weather likely contributed to the drop in housing starts, particularly in the Midwest. The cooling in permits activity suggests that homebuilders are waiting to see how demand evolves before ramping up the pace of construction. Overall, housing starts are expected to rise by 4.0% to 915,000 at an annual rate in February, from 880,000 in January. European Market European stocks rallied yesterday despite the on-going geopolitical tensions in Ukraine and Russia. Renewed merger-and-acquisition activity in the energy and telecom sector is turning investor sentiment positive. The German ZEW survey was mixed in February. The current situation index improved more than expected, however the expectations index eased off its multi-year highs. The ECB accommodative policy stance, improvement in other sentiment surveys and the German equity market suggests the expectations index could remain elevated but the uncertainties in Ukraine could also dampen investors?? confidence. Overall, the German ZEW survey is expected to moderate to 53 in March. Eurozone final CPI Inflation was revised down 0.1pp to 0.7% yoy from the preliminary estimate of 0.8% yoy, below market expectations. The breakdown by component shows that energy price inflation declined from -1.2%yoy to -2.3%yoy. The downward contribution to inflation from this (and from a decline in food price inflation) was offset by rising inflation in non-energy industrial goods as well as in services. As a result, core inflation ?V headline inflation excluding energy and unprocessed food (ECB definition) ?V increased from 1.0% yoy to 1.1% yoy. Asia Pacific Market Most Asian stock markets, outside of Japan, were up yesterday despite Western countries issuing fresh warnings of more sanctions on Russia after Crimea voted overwhelmingly to break from Ukraine and join Russia. Chinese stocks rose on Monday and were lifted by property and infrastructure counters after China announced plans to speed up the pace of urbanisation. Property developers led the gains after the government outlined infrastructure investment plans aimed at raising the proportion of the population living in cities to 60% by 2020 from 53.7% now. Indian stock markets were closed yesterday for a public holiday. Trading will resume today. Emerging Markets Russian stocks rallied after the referendum in Crimea. After reaching the lowest level in almost five years on Friday, Ibovespa index rose 0.3%, in line with global markets, as the local agenda brought no major releases. On a year-to-date basis, Brazilian stocks continue to disappoint, down by more than 12%. On Sunday 16 March, Ukraine Crimea region held a referendum on whether to join the Russian Federation or stay within Ukraine and restore the 1992 constitution, which offered Crimea even more autonomy on governance. The preliminary results showed that the 95% of the Crimean people voted in favour of joining Russia, the rest voted for larger autonomy of Crimea as part of Ukraine and there was no option to vote for independence or status quo in the referendum question. Ukraine, the EU and the US consider the referendum illegitimate and do not recognise the results. Therefore, EU and US have announced they will consider sanctions. Within sanctions, several levels can be defined, depending on their economic impact. The sanctions imposed so far are more symbolic than effectively constraining (a freeze of visa and assets held in Europe for some targeted political and economic leaders of Russia, and more generally a freeze in multilateral coordination). A second category of sanctions could encompass trade sanctions, which could have a more visible impact on activity at a global level. A third category would focus on strategic products like oil and gas, with even more damaging consequences, particularly in Central and Eastern Europe. However, the last two categories would only occur in extreme circumstances and both Russia and Western governments want to avoid tensions to escalate to this point. Going forward, there are two uncertainties. Firstly: assuming that the Russian authorities accept Crimea application, what will be the practical details of such integration into the Russian Federation? Secondly, European leaders will hold a Summit on Thursday and Friday which will likely be dominated by discussions about the European response to the referendum and the subsequent decision of Russia to integrate Crimea. Bond Market Core safe haven European bond yields rose (prices fell) yesterday after Sunday referendum in Crimea passed without major violence, reducing demand for safe-haven assets. With the Crimea vote out of the way, investors were focusing on this week Fed policy meeting, at which the central bank is expected to continue to reduce the size of its bond purchase program but alter its forward guidance. German 10-year bond yields rose to 1.57% and UK gilt yields rose to 2.68%. In the periphery, Italian 10-year bond yields dropped to 3.38%, the Spanish equivalents were down to 3.31% and the Greek bond yields fell to 6.89%. US Treasuries started the week with a poor performance (prices down, yields up), following improvement in risk aversion and less demand for safe assets. 5-year and 10-year yields rose to 1.57% and 2.69% respectively, with the curve bear-flattening
Posted on: Wed, 19 Mar 2014 08:32:35 +0000
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