It never ceases to amaze how financial markets can turn a negative into a positive and so it was with yesterday’s positive reaction to December’s US retail sales numbers and the subsequent rebound in the S&P500, but as with all things it depends on how the news is dressed up.
Having experienced its worst decline in over two months on Monday, yesterday’s US equity market rally was the best performance so far this year
, and was largely attributed to a 0.2% improvement in US retail sales for December, which was better than the 0.1% reading markets had been expecting.
Dig a little deeper and the numbers tell a different story
, because going into yesterday’s figures US retail sales for the fourth quarter were showing a rise of 1.3%
, in the form of 0.6% for October and 0.7% for November.
After the data release these previous numbers were revised down to 0.5% and 0.4% respectively, so in actuality we saw a decline of 0.2% to Q4 retail sales yesterday, and not an increase, as the net Q4 number fell back to 1.1%.
Combine that with hawkish comments from new FOMC voting members Charles Plosser and Richard Fisher
with respect to further cuts to monetary stimulus and fairly indifferent earnings releases from JP Morgan Chase and Wells Fargo and you wonder what has driven the moves of the last couple of days.
The bond markets appear to have reacted to the Fed comments with 10 year yields jumping back 5 basis points, after Monday’s declines
, while Europe’s markets also look set to open on a fairly positive note this morning, following the positive lead from the US and Asia.
Today’s earnings announcements see Bank of America coming to the table
while on the economic data front most of the attention will be on inflation and US factory gate prices for December, and Empire manufacturing for January followed by the Federal Reserve’s Beige Book of economic conditions which in the wake of last week’s disappointing payrolls numbers will be dissected for any evidence of the so-called weather effect cited by some commentators for the disappointing December employment number.
Will the Beige Book survey of the Fed regions
affirm that weather factors caused disruption to economic activity in the month of December? If not then that places a significant question mark over the accuracy of last week’s numbers.
Given the poor weather seen on the eastern seaboard in the past three weeks the latest Empire manufacturing survey for January could well also be a weak number
, even though analysts expect a reading of 4.5, up from 0.98 in December.
As far as European markets are concerned
the only data of note is the latest 2013 German GDP number
which is expected to show a fairly weak performance for last year with a fall from 0.7% to 0.5%
, though the economy ministry is likely to stress that economic performance is picking up sharply heading into 2014.
– the euro continues to struggle anywhere near the 1.3700 area but has made a higher low for the past four days which suggests that we could once again be heading back towards the main resistance, currently at 1.3875/80. This is the long term trend line resistance from the all-time highs at 1.6040, a break of which could well see a move towards 1.4000.
Support remains just above the 100 day MA at 1.3550, with a break below arguing for a stronger move towards 1.3300 by way of 1.3475.
– after Monday’s test lower we’ve seen a fairly weak rebound so far which looks like a continuation of a right shoulder, of a potential head and shoulders reversal pattern. Even if it is it still needs confirmation and as yet we haven’t seen a break below the neckline which also coincides with long term trend line support at 1.6360 from the 1.4815 lows in July last year. Only a break below 1.6350 could well see further losses towards 1.6250, and even a move towards 1.6110. Any rebounds need to get back above 1.6500 to retarget the 1.6600 level.
– the current rebound is struggling to get above the 50 day MA at 0.8352 drifting back towards the 0.8300 level. This failure could see a move back towards 0.8270 initially, especially if we can’t move beyond yesterday’s high.
The longer term objective at 0.8160/70 remains but it could well take a little longer to get there.
– yesterday’s rebound was as quick as Monday’s decline was sudden as the US dollar did a complete 180, rebounding from 102.85 to close back above 104.00.
Be that as it may we need to get back above 104.70 and Ichimoku cloud resistance on the 4 hour chart to reverse the current break lower.
As such the 102.00 area remains the objective despite yesterday’s sharp snapback.
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