August 16 2013

Eurozone inflation hits 1.6% y/y below 2% ECB target. Trade surplus in the 17-nation single currency area up to €16.9bn. Markets remain jittery despite end of eurozone recession. China and Japan revealed as biggest sellers of US Fed bonds…

This article titled “Stock markets jittery over fears Federal Reserve set to taper stimulus – as it happened” was published by and,

European markets are expected to open lower this morning, as investors remain jittery that the US Federal Reserve will start to cut its massive stimulus programme from September.

Asian markets are slightly down today, after the biggest one-day selloff in the Dow Jones and S&P 500 since June.

Investors remain fretful although members of the Fed say they are still making up their minds about cutting the $85bn bond-buying programme. A voting member of the monetary-policy-setting Federal Open Market Committee, James Bullard, said yesterday that he would like to see more data before reaching a decision.

As the Wall Street Journal (paywall) reports, he said:

We don’t have to be in a hurry to taper.

But as Michael Hewson of CMC Markets observes, this is not stopping investors from selling stocks:

It would appear that the weight of expectation surrounding an imminent tapering of asset purchases, along with a host of disappointing company earnings announcements, has prompted markets into thinking that a September taper is pretty much a done deal.

What makes this conclusion all the more surprising is that apart from yesterday’s weekly jobless claims, the economic data was by and large pretty disappointing, coming in below expectations across the board.

We are also expecting European inflation data at 10am.

I’ll be following all the latest developments today …


Oil prices ease off 4-month high

Investor worries over stimulus have also helped to bring down oil prices. Bloodshed in Egypt had sent the price of a barrel of Brent Crude to a four-month high of $111 on Thursday, but it has slipped back to $110.

Egypt is not a major oil supplier, but investors are worried that the unrest could destablise oil transport throughout the Middle East.

Egypt produces 728,000 barrels if oil a day, about 0.9% of global output, and accounts for 1.8% of the world’s gas supply. BP has said their oil production in Egypt is unaffected, although Shell has closed its office for a few days.

Meanwhile Tunisia, the north African country that was the cradle of the Arab Spring, has had its credit rating cut. As Fast FT reports, Standard and Poors have downgraded Tunisia’s sovereign rating by two notches from BB to B.

The rating agency said fears of terrorist attacks threatened Tunisia’s vital tourist industry.

We view the popular legitimacy of Tunisia’s transitional institutions as increasingly contested, jeopardizing the approval of a new constitution, holding of elections, and implementation of growth-promoting economic reforms.

Quote via Fast FT (metred paywall)


European markets flat

European markets have opened flat after yesterday’s losses.

UK FTSE: +0.09% at 6489 points

France’s Cac +0.19% at 4101

German Dax: -0.03% at 8374

Italy’s FTSE MIB: – 0.01% at 17,461

Spain’s Ibex: -0.01% at 8736


Shanghai market swings

Strange goings on on the Shanghai stock market today. The Shanghai Composite index closed 0.6% down, but not before an unexpected 6% surge in value earlier in the day.

Shanghai-listed Everbright Securities suspended trading of its shares and said it was investigating a problem with its operating system.

This morning, Everbright Securities strategic investment department’s proprietary trading bureau had a problem when using its own arbitrage system. The company is investigating and dealing with the issue.

Market watchers are blaming a lone trader with a “fat finger”.

Maersk cuts shipping forecast

Maersk is a bellweather for global trade.
Maersk is a bellwether for global trade. Photograph: Soren Lund Hviid/Alamy

Another sign of slowdown in the global economy? Maersk Line, the world’s biggest container shipper, has cut its forecast in demand for containers to 2-3%, down from 2-4%.

The Danish company accounts for 15% of the world’s shipping container capacity. Maersk’s profits still look healthy: it reported a $439m (£281m) profit for the second quarter of 2013, up from $227m a year earlier.


Money flows into the eurozone

The euro area notched up a trade surplus of €16.9 bn (£ in June 2013, the European Central Bank reported this morning.

This reflected €11.8 bn surplus for goods€8.7 bn services and €6.4 bn income. This was partly offset by a €10.1 bn deficit for current transfers . Figures are seasonally adjusted.


Eurozone inflation hits 1.6%

Eurozone inflation data is in, and was in line with expectations at 1.6% for July, making it the sixth straight month the rate has been below the ECB’s 2% target.

And below is a chart showing how the trade surplus has increased to €196.1bn compared with €66.1bn last year

Eurozone foreign trade for June
The eurozone’s current account balance has steadily increased over the last 12 months as the trade surplus hit €196.1bn or 2.1% of euro area GDP. Photograph: /ECB

Today’s excitement has got a bit much for Jennifer, who had to head off.

Simon Neville will now be taking over the blog for the rest of the day and attempt to bring you the rest of the day’s events.


Imports and exports continue to fall

While the trade surplus may have widened in June from last year, imports continue to fall.

Imports to the 17 countries using the euro fell 6% on the year for a second consecutive month in June, while exports extended their fall to 3% – a second monthly drop in a row.

Consumer prices fell by 0.5% on the month in July, with prices falling in all areas except services and energy costs.

New car sales up

Another sign of the unsteady recovery in Europe comes in the form of the car market, which recorded another mixed message.

Registrations of new cars in Europe jumped 4.8% in July compared with the same month a year ago, to 1.02m vehicles.

However, registrations in the first seven months of the year fell 5.2% to 7.46m.

One reason for the slight year-on-year increase was an extra working day in Germany’s motoring sector.

More euro-denominated bonds from Asian issuers?

Suggestions of a reduction to the US Fed’s quantitative easing programme has pushed five-year yields to 1.53% today, from 0.65% in May. By comparison the yield on a five-year euro mid-swaps has gone to 1.19% from 0.61%.

Some Asian bond issuers are now suggesting more euro-denominated bonds could be issued as a result.

One banker told Reuters: “There is no talk of tapering in Europe, so interest rate volatility should be smaller than in the [US] Treasury market.”

Cross currency basis swaps from euros to dollars has also improved, meaning that funding in euros is becoming cheaper for the many Asian issuers that routinely swap back to dollars.

China and Japan lead US Treasuries exodus

China and Japan have emerged as the leaders of an exodus from US Treasuries in June following the first signals from the US central bank that it could end its stimulus packages, new data shows.

The two nations accounted for nearly all the record $40.8bn of net foreign selling.

The sales were part of a $66.9bn of net sales by foreigners of long-term US securities in June – the fifth straight month of outflows.

China, the largest foreign creditor reduced its holdings to $1.276tn and Japan reduced its holdings for the third month in a row to $1.08tn.

Merkel win good for business

An interesting piece by Public Service Europe suggesting a Merkel win in the upcoming elections on September 22 will be good for business.

The article says:

The quarterly FT/Economist Global Business Barometer revealed that 60 per cent of 1,500 top business people polled believe the re-election of the centre-right leader would improve their confidence in Europe’s economic prospects. Just 16 per cent would be less confident in the region’s financial future following a Merkel victory.

It quotes Merkel telling German television:

I believe that in Europe at the moment we have to take care to coordinate our competitiveness more closely. We don’t have to do everything in Brussels. We can also consider whether we can give something back.

US housing starts rise

US housing starts and permits for future homes rose less than expected in July, suggesting higher mortgage rates could be slowing the housing market’s momentum.

Housing starts increased 5.9% to 896,000 units in July and June’s starts were revised up to 846,000 from 836,000.

However, the rise was lower than the expected 900,000.

Permits rose 2.7% in July to 943,000, slightly below the 945,000 expected.

Mortgage rates have risen in anticipation at the Fed’s tapering of its quantatative easing, expected to start next month. Builders have also complained that there is a shortage of labour and building materials.

One US residence with no problem finding building materials is the White House, which is installing solar panels on the roof.

An official told the Wall Street Journal the panels:

will help demonstrate that historic buildings can incorporate solar energy and energy efficiency upgrades.

Solar panels are installed on parts of the White House while US President Barack Obama and his family are on holiday in Martha's Vineyard.
Solar panels are installed on parts of the White House while US President Barack Obama and his family are on holiday in Martha’s Vineyard. Eva Hambach/AFP/Getty Images

Germany immigration

Contributor BigBlue80 points out the graph tweeted by @russian_market is from 2011 and points out emigration in Germany has actually fallen.

Emigration in 2008 was 734k while it was only 679k in 2011. Over the last decade the amount of people leaving Germany has been relatively steady at 600-700k.
Immigration has however increased: From 682k in 2008, 960k in 2011 and 2012 it was 1.1 million (net migration 400-500k).


US markets open

  • Dow Jones down 12.6 (0.08%) at 15100
  • S&P 500 down 2.3 (0.14%) at 1659
  • Nasdaq down 2.1 (0.06%) at 3604

US markets all open down slightly, after the largest decline on Wall Street in nearly two months yesterday.

If they close down today it would be the first back-to-back weekly decline since late June.



In the trading room today: EUR, USD and GBP Institutional Forecasts and Outlook. With the USD on track to end another week under pressure against most major currencies, we get ready for the trading week ahead and examine the institutional forecasts and the 12-month outlook for the USD, the EUR and the GBP, we list the Top 10 spotlight economic events that will move the markets next week, we examine the consensus forecasts for the upcoming economic data, we analyze the resilience of the EUR vs USD, we take a look at the anticipated bullish move in the GBP/USD currency pair, we note the weakening of the USD vs JPY, we highlight the market’s reaction to the Euro-zone Current Account and HICP, we discuss new forecasts from Morgan Stanley and UBS, and prepare for the trading session ahead.