Last US economic data presents before Christmas
Yesterday economic data out of the US showed yet again that the patient is alive as initial jobless claims came in very strong for the second consecutive week pushing the 12-week rolling trend figure further down. Also the leading indicators came in better than expected driven by a broad range of sub-components in the index indicating a broader based strengthening of the economy; the largest contribution came from the 2-10 year interest rate spread and housing permits.
In pre-market the first presents of economic data before Christmas have arrived. US durable goods orders for November are up 3.8 percent compared to 2.2 percent expected and last month’s figures were revised up to 0.0 percent from a previously estimated decline of 0.7 percent. Durable goods orders excluding transportation are up 0.3 percent MoM compared to 0.4 per cent expected and last month’s figures are revised up to 1.5 percent from 0.7 percent indicating more orders than initially estimated. Overall durable goods orders on a net contribution basis for the last two months were slightly better and further support the evidence of a somewhat resilient US economy.
Personal spending and income for November are both up 0.1 percent MoM compared to 0.2 and 0.3 percent expected respectively. While the growth in income and spending is evident the data is by no means impressive.
The figures have had a minor impact on European stocks (see chart below of the DAX Index intraday) which are now trading around the lows for the day but still up 0.2 percent.
Later the last dose of economic data is out before the holiday with New Home Sales for November expected (15:00 GMT) to come out at 315K slightly up from 307K in October. Given the latest surprises in housing data it is very likely that today’s new home sales figures will surprise again signalling that the US housing market may finally have reached the bottom.
Gilts below 2% for the first time; Junker speaks disturbingly on rating agencies
European bonds are rising across the board in today’s session and most notably the U.K. 10-year Gilt yield dropped intraday below two percent for the first time (see chart below). This signals further contraction in stress throughout the financial system and we expect that trend to continue until New Year unless any news gets out of Europe.
However, when we move into 2012 the disturbing reality of Europe will spook again and could very well result in the “perfect storm” as the whole ratification process on the new EU treaty reaches a new deadlock combined with massive refinancing of sovereign debt. Only the near-term future will tell whether the European Centrsl Banks new Long-Term Refinancing Operation programme can ease the funding situation.
Jean-Claude Juncker is out today with comments that he is “disturbed” by the timing of rating agencies’ announcements and says he favours a European Credit Agency as it would be more “tactful” on timing. Juncker also says that S&P’s warning on Europe’s AAA rating is a real concern. Well comments like these are not outrageous in a time with political intervention everywhere but it is at the same time disturbing that policymakers are of the opinion that private ratings agencies should not credit rate sovereigns because it is sometimes bad timing. If Europe goes along with this idea it will not matter anyway as daily CDS prices continuously reflect the markets’ views on corporate and sovereign credit.
Our last words before the holiday are: we wish you all a merry Christmas.
Peter Garnry
SAXO BANK