Important developments today:
Global markets: Stocks and oil down; U.S. treasuries up.
U.S. factory orders increase
German factory orders disappoint
Global markets: stocks and oil down, U.S. Treasuries up. World stock markets slumped on Thursday on growing concerns over fiscal problems in some euro zone economies. Falling commodity prices and an unexpected rise in U.S. weekly jobless claims also weighed negatively on equities. As fiscal worries over Greece spread to other highly-indebted euro zone countries, such as Portugal and Spain, the benchmark MSCI world equity index dropped 0.7% and the Standard & poor’s 500 index slid 1% in morning trade. The MSCI Emerging Market Index also slipped 1.4%, snapping a three-day rally. Meanwhile, crude oil prices continued to fall today, slipping below $76/bbl, as rising U.S. crude inventories and slumping equity markets pointed to continued oversupply in markets. In contrast, U.S. Treasury prices advanced as demand for safe-haven assets grew amid growing speculation that some European countries will have difficulty curbing their budget deficits. Yields on the 10-year note, which move inversely to prices, dropped 5 basis points (bps) to 3.66%. The yield climbed earlier to 3.71%, the highest level in two weeks.
U.S. factory orders increase. Orders at factory gates increased by 0.9% (m/m) in December following an upward revision in November, according to the latest report from the Commerce Department. Orders for durable goods increased by 1.4% (m/m), while demand for motor vehicles surged by 4% in December. The momentum of growth (3 month moving average, saar) in manufacturing orders has been uneven since the fourth quarter, dropping to 2.5% in December from gains of 8.7% in November. Inventory levels in factories fell 0.1% over the same period, good news from a growth perspective, making it likely that manufacturer’s will continue to boost production to serve fresh demand in coming quarters.
In a report from the Labor Department….initial claims for jobless insurance unexpectedly increased for a fourth time in five weeks during the week ending January-29, raising concerns that further improvements in labor markets are some time away. The number of new claims increased by 8,000 to 480,000, while the 4-week moving average, which provides a less volatile picture of layoffs, increased for a third straight week by over 11,000 to 468,750. Analysts from the Labor Department are stating that the surge in claims in January was the result of an administrative backlog. However, the employment report for the month, out tomorrow, will provide a clearer picture of conditions.
Source: Deutsche Bundesbank
German factory orders disappoint in December. Following an upward revision to November orders (to a strong 2.7% gain (m/m)), which tended to cheer markets, December’s new factory orders fell sharply, both from domestic and foreign firms. As Germany’s recovery at the moment is totally export led, with domestic demand in the doldrums, today’s news from the Economy Ministry was a disappointment, and may temper some recent enthusiasm about near-term growth outturns.
Total orders dropped 2.3% in December (m/m), those from domestic firms by 1.4% and by foreign firms by a hefty 3.2%. This has altered the profile of momentum (or annualized growth) substantially, with export orders registering 10% gains for the fourth quarter (saar), contrasted with a 38% advance in the third quarter; domestic orders are now in negative territory (-10%, saar) for the final quarter of 2009, down sharply from 43% in the third quarter. According to Ralph Solveen of Commerzbank in Frankfurt, “We still expect further growth in orders in coming months. The recovery will continue, though possibly not at the same pace as before.”
Among emerging markets:
In Central and Eastern Europe, the Czech Republic’s central bank kept its borrowing costs unchanged at a record-low 1%, after seven interest rate cuts in 16 months.
In the Middle East and North Africa, Egypt’s central bank kept its overnight deposit rate unchanged at 8.25% and the overnight lending rate at 9.25%, the lowest levels since November 2006, for a third consecutive meeting. The decision comes as growth slowed to 4.5% in the fourth quarter of 2009 from 4.9% in the third quarter (y/y) and as urban inflation remained unchanged at 13.2% in December. Core inflation accelerated to 6.9% from 6.6% in November.
In Sub-Saharan Africa, South Africa’s electricity consumption increased 7.5% in December (y/y), marking the biggest rise in consumption in seven years, boosted y stronger demand from the mining sector. Meanwhile electricity production increased 7.2% over the same period, the largest increase since February 2004.