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Pre Market Briefing, 'Ben Bernanke hints tapering of QE by end of the year'

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Market Daily - 20 June 2013

UK Market Snapshot

UK markets finished mixed yesterday, as investors exercised caution ahead of the outcome of the FOMC’s monetary policy meeting. Aggreko plunged 5.3%, after a broker downgrade. HSBC Holdings fell 1.1%, after the Hong Kong Monetary Authority stated that the company is being investigated over the possible rigging of local benchmark interest rates. Peers, Lloyds Banking Group and Standard Chartered fell 0.7% and 0.5%, respectively, following news that the UK parliamentary commission asked for criminal sanctions for incompetent bankers. United Utilities Group and Severn Trent retreated 4.8% and 3.9%, respectively, after going ex-dividend. Rolls-Royce Holdings edged up 0.3%, following news that the company has been selected by Russian airline, Transaero to provide Trent 1000 engines. Micro Focus International surged 9.7%, after posting a rise in its annual profits and lifting its dividend payout. The FTSE 100 shed 0.4%, to close at 6,348.8, while the FTSE 250 rose 0.1%, to settle at 14,010.4.

US Market Snapshot

US markets closed lower yesterday, after the US Federal Reserve indicated that it might start tapering its asset purchase program later this year, citing the reducing risks in the US economy. Research in Motion retreated 4.4%, following a broker downgrade to ‘Underperform’ from ‘Market perform’. Sprint Nextel tumbled 4.4%, after Dish Network declined to lift its bid for the company. Bucking the trend, Adobe Systems rallied 5.6%, after the company reported second quarter adjusted earnings ahead of market expectations. Tesla Motors climbed 1.3%, despite news that the company would call back 800 of its Model S car to repair the mounting defect in the seats. Fedex jumped 1.1%, after posting better than expected fourth quarter profit. The DJIA shed 1.3%, to settle at 15,112.2, while the NASDAQ slid 1.1%, to close at 3,443.2. The S&P 500 slipped 1.4%, to settle at 1,628.9.

Europe Market Snapshot

Other European markets finished lower yesterday, ahead of the outcome of the US Federal Reserve’s monetary policy meeting. Nordea Bank sank 4.7%, after the Swedish government sold more than 250 million shares in the company. Repsol and Total dropped 0.7% and 0.4%, respectively, tracking losses in oil prices. Siemens edged down 0.4%, after a broker removed the stock from its 'Most favoured stock list’. Kabel Deutschland Holding decreased 0.3%, despite Vodafone raising its bid for the company. On the flipside, Nokia jumped 3.4%, amid news that China’s Huawei Technologies may be interested in acquiring the company. The FTSEurofirst 300 index declined 0.3%, to close at 1,180.2. Among other European markets, the German DAX Xetra 30 slid 0.4%, to close at 8,197.1, while the French CAC-40 shed 0.5%, to settle at 3,839.3.

Asia Market Snapshot

 

Markets in Asia are trading lower this morning, following discouraging Chinese manufacturing PMI data and as the US Fed yesterday indicated that it might alter the pace of bond buying program later this year. In Japan, exporters, Mazda Motor and Fuji Heavy Industries are trading 3.0% and 1.3% higher, respectively, as the Yen weakened against the dollar. However, Nikon and Hitachi Construction Machinery are trading 4.8% and 4.5% lower, respectively. Inpex is trading 3.8% lower, tracking losses in oil prices. In Hong Kong, Cnooc and Zijin Mining are trading 4.4% and 4.1% lower, respectively, tracking losses in metal prices. In South Korea, Samsung Electronics and STX Offshore & Shipbuilding are trading 2.5% and 1.3% lower, respectively. The Nikkei 225 index is trading 1.1% lower, at 13,101.5. Hang Seng index is trading 2.4% down, at 20,484.3, while the Kospi index is trading 1.8% lower, at 1,854.6.

Commodity, Currency and Fixed Income Snapshots

Crude Oil

At 0330GMT today, Brent Crude Oil one month futures contract is trading 0.85% or $0.9 lower at $105.22 per barrel, following discouraging Chinese PMI data. Yesterday, the contract advanced 0.09% or $0.1, to settle at $106.12 per barrel. Separately, the Energy Information Administration reported that the US crude oil inventories gained 313,000 barrels for the week ended 14th June.

Gold

At 0330GMT today, gold futures contract is trading 1.94% or $26.6 lower at $1347.4 per ounce. Yesterday, the contract rose 0.52% or $7.1, to settle at $1374 per ounce.

Currency

At 0330GMT today, the EUR is trading at $1.3269 against the USD, losing 0.1%, ahead of the euro zone’s manufacturing PMI and consumer confidence data to be released later today. Yesterday, the EUR weakened 0.84% versus the USD, to close at $1.3282, after the US Federal Reserve indicated that it might soon start tapering its bond buying program.

At 0330GMT today, the GBP weakened against the USD, losing 0.11%, to trade at $1.5457, ahead of the UK’s retail sales data to be released later today. Yesterday, the GBP weakened against the USD by 1.01%, to close at $1.5474, after the Bank of England (BoE), Governor Mervyn King stated the need for more stimulus. Meanwhile, the minutes of the latest BoE meeting revealed that policymakers remained divided at 6-3 to keep asset purchases unchanged.

Fixed Income

In the US, long term treasury prices fell, pushing the yields higher, after the Federal Reserve Chairman, Ben Bernanke stated that the central bank may scale down its asset purchase program later this year. Yesterday, yield on 10-year notes rose 13 basis point to 2.33%, while yield on 2-year notes gained 4 basis point to 0.31%. Meanwhile, 30-year bond yield rose 7 basis point at 3.41%.

Key Economic News

 

BoE votes 6-3 against increasing QE

The minutes of the Monetary Policy Committee’s (MPC) last policy meeting revealed that six members of Bank of England’s (BoE) MPC voted against additional easing measures, while three members Mervyn King, Paul Fisher and David Miles voted in favour of an additional easing of £25 billion.

Spain recorded a trade deficit in April

According to data released by the Commerce Ministry, trade balance in Spain recorded a deficit of €1.642 billion in April, compared to a surplus of €0.63 billion reported in the previous month. Exports surged 18.6% from a year earlier to €20.398 billion while imports rose 7.2% to €22.04 billion.

Euro-zone construction output rose in April

On a seasonally adjusted monthly basis, construction output in the Euro-zone rose 2.0% in April, following a revised 1.8% drop recorded in March. On an annual basis, construction output dropped 6.6% in April, compared to a revised 7.3% drop recorded in March.

Swiss ZEW expectations index remained unchanged in June

According to the Centre for European Economic Research (ZEW) survey, Economic Confidence Index in Switzerland remained unchanged at a reading of 2.2 in June.

Fed maintains its key interest rates

The Federal Open Market Committee (FOMC) stated that the Federal Reserve has maintained its interest rates unchanged at a record low range of 0% to 0.25%.

Ben Bernanke hints tapering of QE by end of the year if economy strengthens

US Federal Reserve Chairman Ben Bernanke, at a press conference said that the central bank would reduce its asset purchases, later this year if the economy continued to strengthen. He further added that "The committee currently anticipates that it will be appropriate to moderate the monthly pace of purchases later this year, and if the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year."

US mortgage applications declined last week

According to Mortgage Bankers Association (MBA), for the week ended 14 June 2013, mortgage application volume in the US, on a seasonally adjusted basis, fell 3.3% from one week earlier. Meanwhile, the refinancing demand for the week also increased 3.0% from the week before.

Canadian wholesale sales rose less-than-expected in April

On a month-on-month seasonally adjusted basis, wholesale sales in Canada rose 0.2% in April, compared to a revised rise of 0.1% recorded in the previous month. Market had expected the wholesale sales to rise 0.3% in April.

Japan’s nationwide department store sales improved in May

In Japan, the Department Store Association reported that the nationwide department store sales rose 2.6% annually in May, compared to a 0.5% drop recorded in the previous month. Meanwhile, on a year-on-year basis, Tokyo’s department store sales rose 5.1% in May, compared to a 2.1% rise recorded in the previous month.

Japanese investors were net sellers of foreign bonds last week

The Ministry of Finance reported that the Japanese investors sold a net ¥ 402.5 billion in foreign bonds and notes in the week ended 14 June 2013. Japanese investors also sold a net ¥129.9 billion of foreign stocks. The ministry further stated that the foreign investors bought a net ¥313.3 billion in Japan bonds and notes and sold ¥3.6 billion of Japanese stocks in the week ended 14 June 2013.

China manufacturing PMI fell more than expected in June

 

The HSBC flash manufacturing Purchasing Managers’ Index in China declined to a reading of 48.3 in June, its lowest level in nine months, compared to a reading of 49.2 reported in May. Market had expected the PMI to rise to a level of 49.4 in June. 


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