Markets pause on weaker US data

Wednesday, February 19, 2014

US markets struggled to find a definitive direction after the release of bearish economic data confirmed views that growth was slowing. The S&P 500 managed to build on the momentum gained towards the end of last week as it rallied higher for the third straight session, closing up 0.12% as modest gains in healthcare, oil & gas and utilities helped offset declines in telecoms and consumer goods. However, the DJIA failed to build on recent gains after the release of a weaker than expected Empire manufacturing survey which dropped to 4.48 in February from 12.51 the previous month, well below the median expectation of 8.5 from economists surveyed by Bloomberg. Further concerns were raised after the NAHB housing market index weakened for the third straight month, dropping to 46 in February from 56 the prior month which has compounded the bearish viewpoint in light of recent weaker manufacturing and labour market data.

The jittery tone on Wall Street carried over to the Asian session which saw Japanese equity indices pullback on profit taking after Monday’s surge. Both the Nikkei and TOPIX spent the entire session in negative territory, closing 0.52% and 0.45% lower respectively as investor’s exercised caution ahead of key economic data. US MBA mortgage applications, housing starts and building permits are all expected later on today which will provide market participants with further insight into the potential timeframe of the current drop in momentum.   

Both front month and near term Arabica coffee futures rallied 9% yesterday, reaching a thirteen month high as prices were supported higher on concerns that drought in Brazil could lead to a smaller harvest this year. The surge was largely driven by fund buying which has seen prices rise almost 36% since the beginning of 2014 after last year saw declines of 33%, dominated by bouts of selling short.

BOE governor Mark Carney will hope to build on yesterday’s surprise drop in UK inflation which fell to a four year low to 1.9% y/y in January as minutes from the Feb 5-6 meeting and unemployment data released later this morning will hopefully provide the central bank with the necessary support for maintaining low interest rates. Adding to the rapidly improving outlook of positive growth, falling unemployment and inflation has been the gradual appreciation in GBP, which has strengthened approximately 13% against the dollar since last summer. With the BOE forecasting a prolonged period of below target inflation households may receive a much needed boost in spending power which may spur growth further.

Empire manufacturing survey shows a surprise drop in February

EMPRGBCI Index US Empire State 2014 02 19 07 40 17 

NAHB housing market index falls m/m, sparking fears of a prolonged slowdown

USHBMIDX Index National Associa 2014 02 19 07 45 33

2nd month Arabica futures rally higher after consolidating around 61.8% fib level

KC2 Comdty Generic 2Nd KC Fut 2014 02 19 07 20 34

UK CPI posts a surprise drop in January as sterling continues to strengthen

UKRPCJYR Index UK CPI EU Harmon 2014 02 19 07 57 11


Events for today: Wednesday, 19 February 2014

0930

UK

Jan

Claimant Count

0930

UK

Feb

BOE minutes

1330

US

Jan

Housing starts

1330

US

Jan

Building Permits

1330

US

Jan

PPI

View Economic Market Calendar

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