Daily Market Color 05.29.2014

Daily Market Color

05.29.2014

Economic Reports & Headlines

US GDP declined for the first time since 2011. The first quarter reading came in at minus 100 basis points versus consensus of minus 50 basis points. The downturn was expected and was attributed to the fierce and disruptive winter weather that blanketed the US during the first quarter.

 

Weekly jobless claims came in better than expected. Claims were at 300,000 versus an expected 317,000. 

 

The National Association of Realtors US Pending Home Sales Index for April came in slightly below expectations. Pending homes sales increased 40 basis points versus an anticipated 100 basis points on a month over month basis.

 

This evening Japan will dominate the economic calendar with five reports that merit extra attention. We will get a read on Japanese consumer inflation, manufacturing, employment, household spending and industrial production.

 

Despite the negative GDP read in the US, Federal Reserve Bank of Richmond President Jeffrey Lacker expects a positive GDP reversal in the Second Quarter.

 

Bond surge drives yields to one year lows according to Bloomberg.

 

Trades
The contraction was expected, however, the degree to which we saw the US economy contracted this morning was unexpected. Nevertheless, the first quarter GDP report was brushed off by market players. Capital markets remained calm. US equities and US Treasuries were flat. The EUR/USD pair was flat and in line with the underlying story, which is unconventional easing in the Eurozone in roughly a week or so. As the trading sessions go on, it appears that the EUR/USD maybe the next trade. Volatility is bound to arise from the ECB's monetary policy announcement in June.  

Daily Market Color 05.28.2014

Daily Market Color

05.28.2014

Economic Reports & Headlines

We'll start off in France with a disappointing Consumption of Manufacturing report. The report showed no month over month growth in April. Economists' were expecting a rise of 20 basis points.

Producer prices in France were in line with an all too familiar and unwanted economic trend in the Eurozone which is deflation. Prices declined on a month over month basis at a slower than expected pace which was -10 basis points versus the expected -20 basis points.    

The unemployment rate in Germany was unchanged at 6.7% in April after an unexpected increase in unemployment of 24,000.

The European Commission's Economic Sentiment report was slightly better than expected by coming in at 102.7 versus consensus of 102.4. 

UK's CBI Distributive trade report which is an indicator of short term trends in the retail and wholesale sectors, greatly disappointed. The report came in at 16 for May versus expectations of 35.  

Trades
Germany's unemployment report should amplify the ECB's easing speculation in June. The Euro might end up being a rewarding currency to trade in June. I read that one market player is expecting the ECB's easing to come in the form of targeted LTRO's along with a 15 basis point rate drop. If the ECB acts too timidly in comparison to the market expectations, I would like to go long the Euro. If the ECB comes out with an aggressive easing policy then I will want to short the Euro. Either way, there is money to be made with the Euro in June.

Daily Market Color 05.27.2014

Daily Market Color

05.27.2014

Economic Reports & Headlines

They were a lot of reports on the economic calendar today in the US. We'll start off with a better than expected Durable Goods report for April. On a month over month basis, New Orders rose 80 basis points(bps). Most of the rise was contributed to transportation. New Orders minus transportation grew 10bps.

The SP Case-Shiller 20 City Home Price Index for March came in better than expected. On a year over year basis, prices rose 12.4% versus consensus of 11.9%.

The Conference Board Consumer Confidence Index was in line with expectations, which were at 83.0 in May versus 82.3 in the previous reading.

Over the weekend, Petro Poroshenko was voted in as the new Ukrainian Prime Minister. 
 

Trades
US stocks are hitting new highs today in what appears to be a positive response to the domestic economic reports that were released. All three reports that merited attention today was in line with expectations or exceeded them. When I take a look at other markets I favor trading such as the EUR/USD exchange rate, Great Britain's Pound or the Japanese Yen, it appears as if everything is priced in. EUR/USD is trending lower in response to Mario Draghi's clear commentary about his intentions to combat deflation in the Eurozone starting in June. The pound is drifting lower, but not at an alarming pace due to the strength of its economy coupled with commentary from the Bank of England to curb price increases in select markets such as housing. The Yen has virtually gone nowhere worth noting because we are awaiting a trend in reports that would prompt the Bank of Japan to take action. I expect the first trade to come out of Europe with a strong reaction in EUR/USD exchange rate once the ECB makes its Monetary Policy announcement in June. After the ECB, I expect a good trade to come out of the UK with further tighten from the Bank of England. 

Daily Market Color 05.23.2014

Daily Market Color

05.23.2014

Economic Reports & Headlines

First quarter GDP in Germany was in line with consensus on a year over year basis by increasing 2.3%.

 

The CPI report in Canada for April was in line with consensus on a year over year basis, registering a 2% increase in consumer prices.

 

On the domestic front, US new home sales came in higher than expected. 433,000 homes were sold versus an expected 420,000.

Trades
The news reports were uneventful this morning. GDP in Germany showed no surprises and US home sales was better than expected. We all are waiting to see if Mario Draghi and Co will ease in next month. It should make the Euro/USD pair fun to watch. 

Daily Market Color 05.22.2014

Daily Market Color

05.22.2014

Economic Reports & Headlines

Tensions are rising Thailand. According to a report from Reuters, the Thai army has taken control over the country after talks between rivals failed. 

The PMI part of the month is here and China kicked it off with a flash reading this morning for May which was above consensus but still a contraction nonetheless, 49.7 Vs 48.3. 

Flash PMI for France in May which was below consensus for manufacturing and services. Manufacturing, 49.3 Vs 51.0. Services, 49.2 vs 50.2.

Germany Flash PMI was mixed. Manufacturing was below consensus, 52.9 Vs 54.1. Services expanded stronger than expected, 56.4 Vs 54.5.

Flash PMI for the EMU in May was mixed. Manufacturing came in at 52.5 versus consensus of 53.2, which was a respectable expansion in light of economic plight the ECB is battling. Services came in 53.5 versus consensus of 53.0.

Flash PMI on the domestic front was robust. The expansion came in higher than expected at 56.2 versus 55.9.

Exisiting home sales for April increased 1.3% on a month over month basis for the first time this year.

Trades
The global economic calendar was very busy today. Flash PMI readings from the European region were promising. However, the reading in China was lackluster and uncharacteristic of the China we are accustomed to. Europe flash readings showed an expansion overall. This data runs counter to commentary and market positions that hints at sluggish economic growth in the EU. Even though the reports were upbeat, I am still prepping to trade with forthcoming central bank actions.  

Daily Market Color 05.21.2014

Daily Market Color

05.21.2014

Economic Reports & Headlines

According to a report from Reuter's Morning Digest, Chinese President, Xi Jinping, warned Asian countries about forming military alliances with nations to counter China. Territorial disputes have been intensifying in the past few years between China and other Asian countries.  

Russia and China sign a 30 year $400 billion natural gas deal.

Bank of England Monetary of Policy Committee minutes in May showed that committee members are split over early rate hikes.  

UK retail sales for April rose 6.9% versus estimates of 5.1% on a year over year basis. According to Econoday, this is the fastest pace that sales increased in a decade.

Japan merchandise trade report for April showed a 809 billion yen deficit. Exports and imports grew faster than expected, 5.1% and 3.4% respectively. 

The Bank of Japan released its monetary policy announcement yesterday evening. The monetary policy board left their policies unchanged, thus removing any hope for additional easing for now. The BoJ is expecting inflation to fall short of their target and remain at 1.25% for an extended period of time.

Trades
Trading with the Bank of Japan for me was a really fun and rewarding trade that I eventually lost due to undisciplined trading practices. I am waiting for more action to come out of the country so I could redeem myself there. It appears that additional monetary policy will come about in Japan if inflation begins to slow down considerably and head towards deflation. In the BoJ minutes, it appears that board members are comfortable with the current rate of inflation. So I would stay away from Japan in the meantime.
 

Daily Market Color 05.20.2014

Daily Market Color

05.20.2014

Economic Reports & Headlines

The global economic calendar is filled with meaningful reports that we will delve into shortly. But first lets go over Home Depots figures for May. According to Home Depot, the overly aggressive winter season subdued first quarter sales which only grew 2.9%.

According to a monthly Bloomberg survey, 90% of economists believe that Mario Draghi, head of the European Central Bank (ECB), will move to ease monetary policy in June. At the moment inflation and economic growth is below the bank's target.

Later this evening, the Bank of Japan (BoJ) will issue their monetary policy announcement. Japanese Yen Futures rallied for the past five trading sessions. This could be an indication that market players are betting on inaction from the BoJ.

Over Germany, producer prices for April were in line with estimates on a monthly basis by declining 10 basis points (bps). On a year over year basis, prices dropped 90bps versus estimates of 80bps. 

In the UK, prices are rising at a rapid pace. On a month over month basis, consumers grew 40bps vs estimates of 30bps. On a year over year basis, prices grew 180bps versus 170bps. This is the highest since the start of the year and the first increase since June 2013 according to Econoday. Sea and air fare increased 18% and 22% respectively on a monthly basis. 

UK producer prices dropped unlike consumer prices. On a yearly basis prices dropped 5.5% versus estimates of 4.9%.

Trades
It appears as if central banks across the globe will be active this year. The ECB might ease further. The BoJ might ease further. Inflation is becoming a bone of contention in the UK and is prompting speculation for housing curbs in the country. And on the domestic front, there's a slight possibility that the rate of winding down QE might change. I feel the Bank of England and the European Central Bank may alter their policies before everyone else. And if they do, trading opportunities will take shape.

Daily Market Color 05.19.2014

Daily Market Color

05.19.2014

Economic Reports & Headlines

On the macro front, the markets was practically quiet today. Two Fed officials stated that the super easy money policy from the Federal Reserve pose a risk. I see no importance or significance in the statement that was made by San Francisco's Fed president, John Williams. However, this could lead market players to speculate about the pace at which the Fed ends its bond buying program.   


The US charged five Chinese military officials with cyber espionage. China refuted the charges.

The head of the Bank of England, Mark Carney, expressed his concern over rising residential property values in the UK. In his opinion, home price inflation pose the largest threat to UK's economy.

  

Trades
I currently don't see anything worth trading at the moment. They are no forthcoming monetary policy shifts or political shifts that would encourage me to risk any amount of capital at the moment. In addition to that, its the summer. I only saw one good trade during the summer during my six years of trading and that was when the debt ceiling debacle was reaching a pivotal deadline that sent stocks into a free fall.