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Commentary: Stocks fall with QE tapering likely to continue; Flash PMI up next
00:00, 19 February 2014
US FOMC minutes came out this afternoon and managed to throw a bucket of cold water on an early rally. The most important things to come out of the minutes were that several members want to assume a $10B tapering of QE to be the base case for each meeting this year unless something really bad happens. Members also felt that as the unemployment rate approaches 6.5% the Fed may need to change its interest rate guidance. Perhaps what is most important about all of this is that it means that looking forward the conversation is not about whether the Fed will stimulate further but how quickly it intends to remove the stimulus in place. This ripped the rug out from under early gains and drove US indices lower right into the close. CAD also had a rough go of it today as the loonie sold off sharply following the release of disappointing wholesale sales data. The street appears to have missed that this was a December number and thus was likely impacted by the ice storm and holiday season. As with other Canadian indicators like jobs, the next release could show a rebound so the street may have overreacted to this news. Natgas had another wild day finishing above $6.00 up nearly 10% on the day. Seasonal trades in energy like natural gas and heating oil remain in focus with the brutal winter driving strong heating demand. Weather based moves, like the weather itself, can dissipate just as quickly as they come so there remains the potential for significant moves in both directions as we move through this extended peak of heating season particularly with weekly storage coming up. Other commodities continue to strengthen on an improved outlook for resource demand with WTI crude oil and copper also continuing to climb. The FOMC minutes kicks off a very busy 24 hours for news. Asia Pacific markets may react to a number of releases from New Zealand along with trade data for Japan and Singapore’s GDP report. Flash PMI numbers are the main attraction today with China particularly in focus with traders looking for confirmation of the improvement seen in recent loan data. This release may hold particular importance in the absence of several Chinese indicators this month due to the New Year holiday. The US report along with the Philly Fed may also be monitored for signs of how badly weather disruptions have impacted the economy into February. Tomorrow morning, energy inventories could attract attention with commodities trading more actively this week. Corporate News Tesla Motors $0.33 ex items vs street $0.22, Q1 production guidance 7,400 cars vs Q4 6,587. Full year 2014 expects to deliver 35,000 cars and raise production from 600 cars/week to 1,000, supply of battery cells biggest bottleneck. Shares up over 10% in early afterhours trading toward $220. Facebook agrees to purchase WhatsApp, a moving messaging company for $16 billion Economic News Significant announcements released overnight include: US housing starts 880K vs street 950K US building permits 937K vs street 980K US producer prices 1.2% s expected Canada wholesale sales (1.4%) vs street (0.4%) UK BoE meeting Minutes 9-0 vote for unchanged as expected UK jobless claims (27K) vs street (20K) and previous (24K) UK unemployment rate 7.2% vs street 7.1% UK 3M employment change 193K vs street 250K and previous 280K Eurozone construction output (0.2%) vs street (1.7%) Upcoming significant announcements include: 8:45 am AEDT NZ producer input prices previous 2.2% 8:45 am AEDT NZ producer output prices previous 2.4% 10:50 am AEDT Japan trade balance street (¥1.51T) 10:50 am AEDT Japan exports street 12.7% 10:50 am AEDT Japan imports street 22.7% 11:00 am AEDT Singapore GDP street 5.2% vs previous 4.4% 11:00 am AEDT NZ consumer confidence previous 135.8 12:45 pm AEDT China flash PMI street 49.5 8:00 am GMT France flash manuf PMI street 49.6 8:00 am GMT France flash service PMI street 49.4 8:30 am GMT Germany flash manuf PMI street 56.3 8:30 am GMT Germany flash service PMI street 56.4 9:00 am EST US flash manufacturing PMI street 53.0 7:00 am GMT Germany producer prices street (0.8%) 8:30 am EST US consumer prices street 1.6% 8:30 am EST US jobless claims street 335K 10:00 am EST US Philadelphia Fed street 8.0 10:30 am EST US natural gas storage previous (237B) 11:00 am EST US crude oil inventories previous 3.2 mmbbls