In This Issue.
* Uneventful first day
* Mixed US data
* Range bound trading
* Canadian GDP
And, Now, Today's Pfennig For Your Thoughts!
It’s a thin market today...
Good day.And welcome to Friday morning, which happens to be not only month end but also the conclusion of the first quarter. Chuck is back in the saddle on Monday morning so that will take care of it for me, but I'm sure he has a bunch of stuff that he saved up while he was away. I talked to Chris yesterday and it sounds like he is having a great time in the Northeast. I think we have a full desk next week, so I'm definitely looking forward to that. Well, it was an interesting day yesterday as the reaction to Cyprus was much more muted than many had originally anticipated.
As I mentioned yesterday, Cypriot banks reopened for the first time in two weeks and things went surprisingly smooth. We didn't see the capital flight which the markets had been building up and pricing into the euro. Instead of seeing headlines about bank runs and massive lines of bank depositors, we saw headlines of optimism. We know this can change at the drop of a hat, but most banks were only reporting lines of maybe 15 to 20 people. It was expected to be a mob scene, so banks were restricted to only have about 8 people in the bank at a given point.
It was also reported that most people were simply withdrawing funds for daily use instead of expressing a desire to pull their balances. I think a round of buy the rumor and sell the fact was at work, so when things didn't blow up, we probably saw a good chunk of shorts get closed out. Before I head into the US economic data, I have a correction to make. Upon further review, we do have some data out today. When I was looking at the schedule on Monday, I didn't scroll down far enough to see Friday's events, so I incorrectly assumed.
Anyway, it was a mixed bag at best yesterday. The final revision to 4th quarter GDP was adjusted upward to 0.4%, but came in lower than the expected 0.5% figure. Third quarter growth was 3.1%, so the largest cut in military spending in over 40 years along with a slowdown of inventories were the biggest culprits to the drastic difference in results. Looking toward the first quarter, most are anticipating better results as consumers had brushed aside higher taxes and kept on with their spending habits, so the experts are calling for a 2% rise in the first three months of the year.
Next up, we had jobless claims increase to 357k and was the highest figure we've seen in almost a month. According to the Labor Department, there wasn't anything abnormal or unusual with the numbers, so there doesn't appear to be a technical reason for the rise. There weren't any comments involving the sequester, but the four week moving average did rise to 343k. The continuing claims component fell to 3.05 million, but I saw mounting concern about the possible effects of reduced government spending over the weeks ahead.
It's worth noting continuing claims didn't take into account emergency and extended benefits, so we still need to take them into consideration. Those who have exhausted their traditional benefits rose by about 125k to 1.91 million. I don't see much attention given to this figure, but in order to get a better sense of the whole picture, this component can't get swept under the rug and forgotten about. The bottom line is the jobs market isn't progressing enough at this point to support and drive the economy out of this modest trend.
Consumer spending, which represents the air needed to keep the economy alive, actually declined to 1.8% in the final revision of 4th quarter stats. The previous reading was 2.1%, but I didn't see any headlines expressing concern over the 14% drop in spending. We also saw the final revisions to some inflation data come in a bit higher, but again, the higher GDP number had a blinding effect to everything else. We saw yet another consumer confidence report take a hit in March. I can't think of any confidence reports lately that have been upbeat, so I would say this sentiment isn't an isolated phenomenon.
Today, we'll see the all important personal income and spending numbers for Feb along with an inflation gauge and another regional manufacturing report. Personal spending is expected to rise and Milwaukee area manufacturing activity is supposed to remain about the same. We're going to see a big start to April as next week will bring us some heavy hitting data. While there isn't a ton of reports on the docket, I think we can pretty much place the bulk of the focus on three.
The first report out of the gate is the March ISM national manufacturing number, which the experts are forecasting to match the results of Feb. If we take a look at the regional reports, I agree that it should yield a room temperature result. Factory orders will be another big report as it's expected to show a modest improvement over the last report, which was actually a negative figure. And finally, we end the week with the outcome of the March jobs jamboree. The preliminary numbers give us a gain of 195k jobs, which is down from the previous reading of 236k, and the unemployment rate is expected to remain steady.
Moving over to the currency market, the European trading session once again got the ball rolling and US traders kept is going in the same direction. The range bound trading theme that has been with us all week was still present. At the end of the day, I was surprised to see the euro not only still holding on to the 1.28 handle, but also its very tight range with all things considered. I mean, we didn't even see a one cent variance between the high and low of the day. It's not uncommon to see twice that range, much less a day when a member's banking system came back online after a two week shutdown.
Anyway, the dollar ended the day in negative territory with the Brazilian real and Australian dollar as the only two currencies in the same boat. The Aussie dollar lost about 0.25% on the same day Fitch affirmed its AAA rating, so its move was not of its own doing. Traders sold the Aussie as a result of sympathy pains with Chinese stocks yesterday. With that said, the Aussie economy has remained one of the more resilient throughout the whole financial crisis. The Brazilian real is a different story.
Up, down. Up, down. This isn't someone doing pushups. Instead, it's the direction of the real. We had February unemployment rise to 5.6%, the highest since June, so the currency got beat up a little bit as traders increased bets the central bank won't be as likely to encourage a stronger currency. The real lost 0.50%, nothing too crazy, but it negated the government's efforts just a couple of days ago for a stronger currency. In an opposite turn of events, the South African rand rose to the top with a gain of 0.50%.
We saw inflation back away from the upper limit of the central bank's target, so this removes some pressure from government officials. The economy's fragile state wouldn't be in a position to withstand a rate hike as slow growth in a period of rising inflation usually spells disaster so lower producer price inflation was good to see. A weaker rand isn't helping the situation. A stronger currency helps to offset inflation without the government getting involved and raising rates. A report also showed the trade deficit narrowed in Feb, but economists want to see more results before they get too excited.
German retail sales increased for a second month in Feb, but unemployment did rise a bit in March. The job market in Germany remains healthy as the adjusted unemployment rate in March remained at 6.9%, which is just shy of the 20 year low of 6.8%. The employment picture isn't expected to change much this year, but it's expected to show improvement as we head into next year. Except for the rand and real, the other currencies finished the day with fractional gains.
Take for example, Canada. We saw the results of January GDP come in higher than expected but the currency literally finished the day with the same price as when it opened. While the results didn't catch the world on fire, the economy did grow 0.2%. I think everyone has given up on the potential for higher interest rates at any point in the near term, but the economy is at least showing some potential after a disappointing year in 2012. We'll need to see quite a few reports like this before the central bank can even entertain the thought of higher rates. Even at that point, inflation and housing would need to be near a boiling point to tip the scales.
As I came in this morning, it looks like we're going to head home over the weekend with the euro and the euro equivalents down just over 1% for the week while the other majors finished within a tight radius. Bank activity went on during day two without a hitch as they were open for a full day. It was the same scene as yesterday as the mass chaos that was being hyped has not yet come to fruition. Statements from European officials have also been at a minimum, so I don't know if there was a memo sent around to keep quiet or not, but the sound bites have been at a minimum over the past couple of days.
To recap.Banks in Cyprus re-opened yesterday and things went a lot better than was originally anticipated. It was only the first day and restrictions are still in place, so there is still a long way to go. It was a mixed bag in the US data department as 4th quarter GDP came in a little higher but consumer spending and confidence came in lower. Jobless claims came in more than expected but focus will shift toward next week's March jobs jamboree. The currency market was range bound again, with BRL and AUD on the losing end with the USD. German retail sales and Canadian economic growth came in better than expected.
Currencies today 3/29/13. American Style: A$ $1.0412, kiwi .8366, C$ $.9835, euro 1.2816, sterling 1.5198, Swiss $1.0530. European Style: rand 9.2458, krone 5.8377, SEK 6.5175, forint 237.40, zloty 3.2583, koruna 20.1138, RUB 31.0265, yen 94.07, sing 1.2411, HKD 7.7630, INR 54.28, China 6.2689, pesos 12.3384, BRL 2.0217, Dollar Index 82.97, Oil $97.23, 10-year 1.85%, Silver $28.50, Gold $1,599, and Platinum $1,571.50.
That's it for today.I wasn't able to watch any of the Sweet 16 games last night, but I saw where Indiana lost so I'm sure a ton of brackets got busted with that loss. I plan on catching the action tonight and then I'm looking forward to a relaxing weekend celebrating the Easter holiday with family. It's been a month of using crutches and a boot with my broken ankle so hopefully the doc has some good news for me on Monday. There's only a month left in the NHL season and it's a tight race in the Western division for the St. Louis Blues. Playoff time will be fast approaching, so winning games now will go a long way in making their lives easier. However, they couldn't get it done last night. Well, that does it for me. So until next time, Have a Great Day!
Assistant Vice President
EverBank World Markets
03-29-2013 12:19 PM