Binary Options Markets Reviews 19/03/2013

De-correlation between U.S. and European data

Mostly positive data from the U.S.

Most economic data published last week in the U.S. were positive. Nonetheless, the surprising and steep decline at the consumer sentiment index for March, to its lowest level in the last 15 months, led last Friday to a decrease in the yields of Treasuries.
There are mixed indications regarding personal consumption. On one hand, there was the higher than expected increase in February at the volume of retail sales (sales excluding autos rose by a monthly rate of 1.0% versus an expected 0.5%). The relatively sharp rise in sales is cheering given the tax increases at the beginning of the year, the February rise in gasoline prices and concerns from the implications of the automatic spending cuts from early March. On the other hand, it is probable that these factors led to the steep decline at the University of Michigan’s consumer sentiment index for March. We negatively note that the index dropped to its lowest level in more than 15 months and that the expectation component in the index decreases sharply, from a level of 70.2 to 61.7.

Indication regarding U.S. industrial sector were more uplifting. The industrial production index rose during February by 0.7% (versus an expected +0.4%), and data from January were moderately updated upwards (From a 0.1% decrease to no change). Furthermore, the industrial expectation survey for the New York area may have decreased slightly, but it remained at a relatively high level (+9.2 during March versus +10.0 in February).

Another positive indication about the employment market came from the decrease noted in new initial jobless claims (to a level of 332K versus an expected 350K). We note that the average number of initial claims during the last four weeks dropped to 347K, versus 360K at the end of 2012.

Disappointment from Europe, new central bank governor in Japan

Europe: Most of the data published regarding the European economy were disappointing, suggesting the continued recession. Industrial production in the Eurozone decreased during the month of January by a monthly rate of 0.4% (versus an expected -0.1%), to a level indicating a yearly shrinkage of 1.3%. The volume of production in the Eurozone decreased during four out of the last five months. Additionally, in spite of the slight improvement in some of the expectation surveys in Europe, leading indices are still at a low level. Such low levels may serve as an indication for the continuation in the shrinkage of industrial production, and an expected continued recession at the Eurozone.

A single bright spot in the disappointing data is the ongoing improvement in economic data from Germany, following a sharp shrinkage in Q4 of 2012. A decrease was recorded in Germany’s trade surplus during the month of January, but examining the different trade components reveals a monthly increase by 1.4% in German exports, to a level indicating an annual increase of 2.4%, and an increase of 3.3% at German import of goods, to a level indicating an annual increase of 2.3%.

Japan: Increasing the volume of the quantitative easing during this year, seems likely. Towards the end of the week, the Japanese government approved the appointment of Haruhiko Kuroda as the new governor of the central bank. The new governor emphasized lately the importance of implementing a very expansionary monetary policy to support the Japanese economy. During last week, the governor noted that the central bank would consider purchasing derivatives as part of the quantitative easing program. Another testimony to the importance of expanding the monetary incentives was received this week with the publishing of a sharp decline in the volume of Japanese Machinery Orders by factories (-13.3% monthly rate in January, to a level indicating an annual drop of 9.7%). We note that the Yen has weakened compared to the Dollar by a very sharp ratio, ever since poll results predicted that the Japanese government will be replaced and that the new Prime Minister, Shinzo Abe, will choose an expansionary monetary policy and demand that the central bank implements a more aggressive monetary policy.

Events for the coming week

Tuesday: ZEW investor confidence survey in Germany, U.S. Housing starts and building permits for February (expected to increase).
Wednesday: Eurozone’s consumer confidence index for March (expected to mildly increase), interest rate in the U.S. to be announced followed by a press conference held by Bernanke, in which investors will seek clues for the future of the FED’s quantitative easing policy.
Thursday: HSBC PMI for China (survey suggests a moderate increase), Eurozone PMI for the industry and services sectors will be published (expected to increase mildly). The Philadelphia area Industrial Survey and Existing Home Sales to be published in the U.S.
Friday: German IFO survey of business confidence for March, expected to increase moderately.

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Author: David Wilson