18 August 2014
Ahead this week (High Impact only)
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# Ukraine ructions rattled equity markets Friday after an earlier bright start to European trade. Reports that Ukraine forces had engaged in military action to turn back the Russian column took Germany’s Dax from 1.0% up to 1.44% down at one stage. The broad EuroStoxx600 measure ended down 0.40% to end the week up a decent 1.48%. Somewhat soggy U.S. data kept the pressure on equity markets with the geo-political situation lurking in the background. The big board S&P500 clawed its way back towards par (close -0.1%) by end of trade after being down as much as 0.7% mid-session.
# The NY Fed’s Empire State Manufacturing survey for August plunged to 14.69 versus consensus of 20 and 25.60 prior. Looking at the components however there were many bright spots. “Most of the indexes for the six-month outlook rebounded sharply after slipping last month, and a number of them reached multiyear highs, signaling increasingly widespread optimism about the near-term outlook,” the New York Fed said in a release. Outlook for New York-area business conditions climbed 18 points to 46.8, the highest level since January 2012 but the new orders index slipped almost five points to 14.1
# The University of Michigan U.S. consumer sentiment survey fell in August to its lowest since last November while a barometer of current economic conditions rose to its highest since July 2007. The overall index on consumer sentiment came in at 79.2, down from a final reading of 81.8 the month before. It was below the median forecast of 82.5. Interestingly, given we approach a huge week in shaping the U.S Fed expectations the survey's one-year inflation expectation rose to 3.4% from 3.3%
# U.S. Industrial production rose 0.4% +0.3% expected) , which was unchanged from June which was previously reported at 0.2%.
# With all eyes turning to the Fed sponsored Jackson Hole central banker symposium this weekend it is fascinating to see the divide apparent in the Fed board. Bullard said “the market is trading too dovishly compared to the committee”. Meanwhile, Kocherlakota said “you hear a lot of concerns that it is time for us to exit… raise rates. But boy, it’s a mistake to go too early”.
# U.S. 10 year yields fell yet a again, to new 15 month lows, hitting 2.30% at one stage before finishing the week at 2.34%. The German equivalent closed the week at an incredibly low 0.96%, its first weekly close below 1.0 ever.
# Strangely Gold fell sharply early in the session before recovering somewhat to end the day slightly down. The sharp rise in geopolitically based risk aversion normally pushes up the gold price, but on Friday it merely took gold off the intra-day low and it still closed down over 0.60% at 1,304. Before the Russia/Ukraine reports came through Gold fell as low as 1,292.50, as longs taken earlier in the week pared back due to global growth concerns and rebounding equity markets. Copper and other base metals moved higher Friday on speculation major central banks including China’s PBOC will step up stimulus to prop up growth. Copper closed up 0.37%. The apparent escalation of the Russia/Ukraine crisis helped push WTI Crude up 1.85%. For the week gold fell 0.46%, Copper fell 2.18%, Crude edged 0.31% lower and iron ore fell 2.61%.
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