GLOBAL NEWS MONDAY, JANUARY 26, 2015 Weekly Market Focus – The markets this week will focus on (1) any Eurozone contagion as the anti-austerity party Syriza appears to have won Sunday’s Greek election, (2) any weather-related disruptions for the markets as New York City faces a storm involving as much as 2-3 feet of snow on Mon-Tue, (3) further analysis of the Saudi royal transition where so far it appears that the Saudi’s war on high-cost oil producers will continue unabated, (4) the likelihood that the FOMC at its meeting this week will leave its policy guidance language unchanged, (5) the Treasury’s sale of $105 billion of T-notes on Tue-Thu, (6) the peak week for Q4 earnings with 142 of the S&P 500 companies reporting, and (7) this week’s heavy U.S. economic schedule, which is highlighted by Friday’s Q4 GDP report (expected +3.1% after +5.0% in Q3). Key overseas economic reports this week are generally expecting to be strong and include (1) today’s German Jan IFO business climate index (expected +1.0 to 106.5), Wednesday’s German Feb GfK consumer confidence index (expected +0.1 to 9.1), Thursday’s German Jan unemployment rate (expected unchanged at 6.5%), Thursday’s German Jan CPI (expected -1.0% y/y vs +0.1% in Dec), Thursday’s Eurozone Jan business climate index (expected +0.08 to 0.12), Thursday’s raft of Japanese data including the Dec CPI (expected +2.3% y/y) and Dec jobless rate (expected unch at 3.5%), Friday’s Eurozone Jan CPI (expected -0.5% y/y vs -0.2% in Dec), and Saturday’s China Jan manufacturing PMI (expected +0.1 to 50.2). U.S. Economic Surprise Index falls to new 10-month low but this week’s U.S. economic reports are expected to be generally strong -- The Bloomberg U.S. Economic Surprise Index last week fell to a new 10-month low of -0.147 and closed the week at -0.140. Even though the U.S. economic data has recently been strong, the Economic Surprise index has faded relative to market expectations. However, this week’s U.S. economic reports are expected to be generally strong, including (1) Tuesday’s Dec durable goods orders (expected +0.4% and +0.6% ex-transportation), (2) Tuesday’s preliminary-Jan Markit U.S. services PMI report (expected +0.5 to 53.8), (3) Tuesday’s Dec new home sales report (expected 2.7%), (4) Tuesday’s Jan consumer confidence index (expected +2.9 to 95.5), (5) Thursday’s weekly initial unemployment claims report (expected -7,000), (6) Thursday’s Dec pending home sales index (expected +0.5% m/m), and (7) Friday’s Q4 GDP report (expected +3.1%). The Treasury this week will sell a total of $105 billion of T-notes including $15 billion of 2-year floating-rate notes and $26 billion of 2-year T-notes on Tuesday, $35 billion of 5-year T-notes on Wednesday, and $29 billion of 7-year T-notes on Thursday. Peak Q4 earnings week has arrived -- This will be the peak week for Q4 earnings with 142 of the S&P 500 companies reporting. The market consensus is for S&P 500 earnings growth to drop to +3.5% y/y in Q4 from +10.3% in Q3. Syriza victory dampens QE enthusiasm -- The Eurozone fell back to earth over the weekend from last week’s QE announcement after Syriza won Sunday’s Greek election and appears ready to take power if it can form a coalition government. The situation in Greece is bad enough but the real danger lies in the possibility of a surge in anti-austerity politics in other troubled Eurozone countries such as Portugal, Spain or Italy. The Eurozone bailouts depend on the troubled countries sticking to their austerity policies in order to reduce their budget deficits and debt levels to more sustainable long-term levels. The markets at present do not seem to be too worried about Greece given expectations that the Syriza party will get over its rhetoric and will eventually succumb to the Eurozone adjustment program. However, there is the possibility that the troika may not bow to Greece’s demands and may just cut the country loose to exit the Eurozone and teach the other troubled countries a lesson. In any case, there will be plenty of brinkmanship over the coming weeks that is likely to stir market worries. Market Recap • U.S. Dec existing home sales rose +2.4% to 5.04 million, weaker than expectations of +3.0% to 5.08 million. • The U.S. Dec leading indicators index report of +0.5% was stronger than expectations of +0.4%, although Nov was revised lower to +0.4% from +0.6%. • The Eurozone Jan Markit manufacturing PMI rose +0.4 to 51.0, right on expectations and the fastest pace of expansion in 6 months. • The China Jan HSBC flash manufacturing PMI unexpectedly rose +0.2 to 49.8, stronger than expectations of -0.1 to 49.5. • Market closes • Stock Market -- The S&P 500 index on Friday retreated from a 1-1/2 week high and closed lower: S&P 500 +1.53%, Dow Jones +1.48%, Nasdaq +1.87%. Bearish factors included (1) the +2.4% increase in U.S. Dec existing home sales to 5.04 million, weaker than expectations of +3.0% to 5.08 million, and (2) weakness in transportation stocks after UPS tumbled when it reported weaker-than-expected 2014 earnings. Stocks had opened higher on carry-over support from a rally in European stocks to a 6-1/3 year high on optimism the ECB’s quantitative easing program will spur economic growth in the Eurozone. • Interest Rates -- Closes: TYH5 +17.50, FVH5 +8.50. • Forex -- Dollar index +0.685 (+0.73%), EUR/USD -0.01615 (-1.42%), USD/JPY -0.745 (-0.63%). • Metals -- Closes: GCG5 -8.1 (-0.62%), SIH5 -0.060 (-0.33%), HGH5 -0.0770 (-2.99%). • Energy -- CLH5 -0.72 (-1.55%), RBH5 +0.0156 (+1.15%).
Posted on: Mon, 26 Jan 2015 06:21:01 +0000
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