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Central Bank Minutes to shed light - Desmond Chua

CMC Markets

Returning from a long weekend, most US stocks traded higher as investors continued to dismiss bad data while M&A activity helped to prop up trading volume. The S&P500 climbed 0.1%, coming within just eight points of a record while the Dow fell 0.15%, after earnings from Coke disappointed. Coca Cola dragged the Dow lower, losing 3.75% after Q4 sales fell 3.6% to $11bn, while net profits shrank 8.4%. The world’s largest soda maker shares the woes of its competitor PepsiCo Inc, with volumes in North America dwindling as consumers opt for healthier choices. Following the Time Warner Cable acquisition, a $25bn bid for Forest Labs by Actavis was the next to grab the headlines yesterday. The offer of $89.48 for Forest Labs was a 25% premium from Friday’s closing price, leading to a 20% surge in its stock price overnight. Meanwhile shares at Forest Labs jumped 5% on the deal which will see tax and operating synergies of $1bn annually. On the economic front, US homebuilder sentiment fell by the most on record, as buyer traffic declined on bad weather conditions, leading to a sell-off in construction companies like DR Horton. New York manufacturing conditions index also came in weaker than expected at 4.5 versus expectations of 9.9, as more than four feet of snow piles up in the state. In Forex, the USD remained under pressure following the weaker-than-expected economic reports. The strength in the EUR was noteworthy, occurring in spite of the disappointments in investor sentiment. Investors in Germany were feeling less optimistic about the future as the economic expectations fell to 55.7 from 61.7, according to the ZEW Indicator of Economic Sentiment. ZEW’s current conditions index, however, fared better, coming in ahead of expectations. Some analysts consider it a better indicator of GDP growth. Elsewhere we saw the Eurozone current account surplus widen to a 15-year record, helping to support the single currency. With no major releases in the Eurozone today, any reach for the 1.383 levels on EUR/USD will depend upon how the housing and inflation data fare in the US. Over in the neighbouring UK, we saw GBP track lower following softer-than-expected inflation data. Consumer prices rose only 1.9% on an annualised basis, falling below the 2% mandate for the first time since November 2009, negating expectations for a rate hike in the near future. The focus will shift to the BOE minutes today, as we seek further clarity on its latest guidance to use spare capacity and a broad base of indicators to signal future rate hikes. The UK unemployment rate will also be due for release today, although it may carry less of an impact with the change in guidance. In the US, after the Fed decided to further taper its asset program by $10bn last month, more light will be shed on this situation with the release of the FOMC minutes tonight. On the commodities front, after rising in seven consecutive sessions, Gold fell overnight as it struggles to maintain gains above $1330. That said, it would remain supported in the near term, with a weaker dollar, if data were to disappoint in the US. Black gold on the other hand seemed to have found a floor in the near term, with the US benchmark holding strong above $100, as the cold winter persists in the US.

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