Tuesday, November 26, 2013



Global - U.S Markets

* U.S. stocks struggle higher but pressured

* European shares sag in choppy month-end trade

* Yen and euro rise vs dollar

Stocks around the globe were under pressure and the dollar slipped on Tuesday amid renewed political tensions in the East China Sea.

U.S. stocks ended little changed during a holiday-abbreviated week as investors found few incentives to extend a rally that has repeatedly taken indexes to record peaks, though a proposed acquisition prompted some risk appetite for equities.

Permits for U.S. home construction rose to the highest level in nearly 5-1/2 years in October, suggesting the housing market recovery remained intact despite recent signs of slowing.

"It is a market that is on data watch as the Fed is clearly on data watch," said Quincy Krosby, market strategist with Newark, New Jersey-based Prudential Financial, which has $1 billion in assets under management. "Permits were very, very good and it will translate into more jobs."

The Dow Jones industrial average closed up 0.26 point, or 0.00 percent, at 16,072.80. The Standardalso 10.81% directs, to leave only low 39.2% dealers awards, the lowest since July's 37.8% dealer bid. The auction also drew a 2.61 bid/cover. Ten-year U.S. Treasury were closing around 2.7075%, up from an earlier low of 2.696%, and compared to Monday's closing levels around 2.735%.

* The dollar tracked U.S. Treasury yields lower Tuesday, sending the euro nearly back to last week's highs around $1.3580. Lower U.S. Treasury yields served also to underpin U.S. stocks, with the Dow Jones Industrial Average and S&P 500 posting new life-time highs. However, the trading action was lackluster, with few wanting to position ahead of key eurozone and U.S. data, due out later in the week, and into what for many will be a long Thanksgiving Day holiday. The DJIA closed flat at 16,072.80, the Nasdaq Composite closed up 23 or 0.58% at 4017.749 and the S&P 500 closed flat at 1802.76. Earlier, the DJIA and S&P 500 posted new life-time highs of 16,120.25 and 1808.42 respectively. The Nasdaq Composite posted a new 13-year-plus high close of 4026.991.

* NYMEX January light sweet crude oil futures settled down $0.41 at $93.68 per barrel, after trading in a $93.55 to $94.69 range. The front contract has traded in a $92.43 (Nov 19) to $96.65 range this month. ICE Brent settled down $0.12 at $110.88 per barrel after trading in a $110.41 to $111.49 range. The spread between Brent and WTI at the close was $17.20, the widest since March.

United States

* The prospect of another round of brinkmanship in Washington and lack of faith in job growth are holding down U.S. consumer expectations, Conference Board survey chief Lynn Franco told Tuesday. "The drop in October we know was due primarily to the government shutdown and debt ceiling crisis, and in November we lost a little more ground. Maybe consumers are anticipating the next round of discussions in January and February," Franco said in a telephone interview. After falling a steep 7.8 points in October, the consumer confidence index slipped another 2.0 points in November to 70.4 for the lowest reading since April. Consistent with concern over Washington is that the decline is centered squarely in the expectations component of the report which fell 2.9 points to 69.3 for the lowest reading since March. In October, expectations plunged 12.5 points.

* The Federal Housing Finance Agency Tuesday said that conforming loan limits for mortgages guaranteed by Fannie Mae and Freddie Mac in 2014 will remain at $417,000 for most of the U.S. and that any additional information about potential changes to the maximum conforming loan limits "will be forthcoming."

* Data through September 2013 released Tuesday for the Sthe index lost a point to end at a reading of 8 in November.

* U.S. corporate employers are spending just a little more on their holiday parties this year, but in an economic recovery that remains wobbly, these outlays are still mostly measured, according to event coordinators. Party planners and venue managers said almost all businesses that had eliminated their holiday festivities during the recession and after have now resumed their year-end shindigs. Some party budgets are still in check, while others are back to lavish levels.

* Nobel Prize winner and noted housing expert Robert Shiller said Tuesday that the momentum the housing market has seen in the first half the year could be coming to an end. "I just don't see a lot of homebuyer excitement," Shiller said during an interview on CNBC following the release of the Case-Shiller home price index - which he helped create. "The price increases seem to suggest it may be more of an unusual demand from investors that is driving demand right now - or it is the pullback from the large number of foreclosures we had before," Shiller said.

* With the fiscal talks between House Budget Committee Chairman Paul Ryan and Senate Budget Committee Chairman Patty Murray focused on replacing some of the scheduled sequester spending cuts with a different package of savings, two veterans of decades of fiscal battles are urging the Congress and the White House to do much more. In a recent essay, former Senate Budget Committee Chairman Pete Domenici and former White House budget director and Federal Reserve vice chairman Alice Rivlin, urge congressional budget negotiators to agree on a narrow deal soon, and big work on a much bigger package.

* The Johnson Redbook Retail Sales Index was up 3.8% in the third week of November following a 3.5% gain the prior week. Month-to-date, November was up 3.5% compared to November of last year. Month-over-month showed a 0.5% drop.


* Argentina expects a proposed agreement for compensating Repsol for the seizure of the Spanish energy company's shares in Argentina's YPF will unleash fresh investment to rebuild energy supplies after a decade of decline, a senior official said Tuesday. Argentine Chief of Staff Jorge Capitanich said a deal brokered Monday between Argentina and Repsol will create "a path that will make it possible to continue generating investment mechanisms for the exploration and production of hydrocarbons" in Argentina.


* Negative deposit rate is a possibility, but that is only one instrument in the toolbox, European Central Bank Executive Board member Benoit Coeure told CNBC TV in an interview. "We have a range of instruments that we would be ready to use if we see further risks to price stability materializing," Coeure said. "We have been clear that it has been both discussed technically and investigated legally," he added. Coeure said he did not see the risk of disinflation deepening in the Eurozone as growth recovers.

* European Central Bank Executive Board member Joerg Asmussen on Tuesday said that the economic recovery in Eurozone member states was making progress but that governments must not veer off from the course of fiscal consolidation. Speaking at a dinner hosted by the private equity association BVK in Berlin, Asmussen described the Eurozone recovery as "weak, fragile, uneven, but it is going in the right direction." Asmussen cited progress in all of the Eurozone's peripheral economies including Ireland, Spain, Portugal, Greece and Cyprus. For Greece, he said "the situation has stabilized," with the government capable of reaching a primary budget surplus this year. There has also been a "good start" in Cyprus after its major crisis early last year.

* The European Central Bank's role as the euro area banking supervisor should not be permanent, ECB Governing Council member Jens Weidmann reportedly said Monday. ECB's decision-making body or the governing council should not be part of the banking supervision, Weidmann, who also heads the German central bank, said in a speech at Harvard University. "If this avenue is not taken, an independent supervisory institution will become necessary, in my view," the official was quoted as saying.

* European Central Bank Executive Board member Yves Mersch said on Tuesday that the bank must ensure smooth flow of liquidity to the banking sector, while making sure that the excess liquidity policy will not become a permanent one. "Excess liquidity policy, however useful and necessary it has been - and still is, should not become a permanent feature," Mersch said in a speech in Frankfurt. "It should be limited in time to avoid dressing-up non-performing loans or ever-greening bad assets that would undermine incentives to restructure or to address structural weaknesses in banks' balance sheets."

* The Bank of England will review the full set of powers that it needs to limit the debt level of banks. In a letter to BoE Governor Mark Carney, the Chancellor of the Exchequer George Osborne on Tuesday said now is an appropriate time for the Financial Policy Committee to consider whether and when it needs any additional powers of direction over the leverage ratio. The FPC will be finalizing the capital framework for UK banks over the next 12-18 months and the leverage ratio will be a critical part of the capital framework for banks.

* U.K. service sector firms are feeling bullish about their prospects following a second successive quarter of solid growth in activity, a survey from the Confederation of British Industry revealed Tuesday. According to the survey, optimism across the sector as a whole increased at the strongest pace since the start of the survey in 1998, while business volumes rose at the quickest rate since November 2007.

* Italy's consumer confidence rose more than expected in November, data released by the statistical office Istat showed Tuesday. The consumer confidence indicator advanced to 98.3 in November from 97.3 in October. Economists had forecast the index to rise to 97.5. The latest score, however, was lower than September's 27-month high reading of 100.8.


* Minutes of the Bank of Japan's October 31 meeting released today showed that three of the nine board members see a greater downside risk to the economy in fiscal year 2014. The board also noted that the economy is following the path to the 2 percent inflation target at a moderate pace and that there remains a high degree of uncertainty over mid- to long-term inflation.

* BoJ said that an index measuring corporate service prices in Japan rose 0.8 percent in October, standing at 96.2. That was shy of forecasts for an increase of 0.9 percent - but was up from the 0.7 percent gain in each of the previous two months. On a monthly basis, corporate service prices were flat for the second straight month.

* Police in China detained nine people in connection with Friday's explosions on an oil pipeline in the coastal city of Qingdao that killed 55 people. Seven of them were from the nation's biggest oil refiner which owned the pipeline.

* People's Bank of China Governor Zhou Xiaochuan said today that China will continue to implement the planned economic and financial reforms as decided at the Third Plenum of the Communist Party. With further reforms, China's overall financial strength and the ability to resist risks will be significantly enhanced, Zhou said while speaking at the third Sino-French financial forum in Beijing.

* China's Ministry of Commerce plans to lift access restrictions on foreign investment in domestic markets such as accounting and auditing, commercial logistics and e-commerce, Minister of Commerce Gao Hucheng told state media on Tuesday.

Foreign investment restrictions on child care, old-age care and architecture will also be lifted, while investment in finance, education, culture and medical care will be opened up to foreigners, state news agency Xinhua quoted Gao as saying.

The report added that the manufacturing sector would become more open.

"The ministry will work to widen market access for foreign investors," Xinhua said. "It will speed up unifying laws and regulations for both domestic and overseas investors, and endeavour to keep investment policy stable, transparent and predictable."

The ruling Communist Party last month unveiled its boldest set of economic and social reforms in nearly 30 years, focusing on the "decisive" role of markets in putting the world's second-largest economy on a more stable footing.

Gao told Xinhua that the Ministry of Commerce would also work to develop free trade zones (FTZs) following the establishment of a pilot free trade zone in Shanghai this year.

"Qualified regions will also be selected to build FTZs or ports," Xinhua reported. "The acceleration of FTZ construction will help overcome the weakness in traditional development patterns and in turn bring further openness and reform."

A document released by the party following the conclave of top leaders promised land and residence registration reforms needed to boost the urban population and allow a transition to a Western-style services- and consumption-driven economy.

Pricing of fuels, electricity and other resources - now a source of distortion - would be mainly decided by markets, while Beijing also pledged to speed up the opening of its capital account, interest rate and currency regime liberalisation.

* The Australian dollar traded higher against most major currencies after Reserve Bank of Australia's deputy governor Philip Lowe's remarked that the central bank's intervention in the currency market has always been an option, but the threshold for intervention is very high. Lowe added that the central bank doesn't rule out intervention in or out.

* Singapore's industrial production increased at a slower pace in October, owing mainly to a contraction in the biomedical industry, a report released by the Economic Development Board revealed. Overall production in the manufacturing sector grew 8 percent in October from the same month of last year, following September's 9.2 percent rise. Economists were looking for a 9.3 percent gain.

* Iran says nuclear deal makes oil exports smoother, cheaper

Iran's nuclear deal with the West will make it easier, cheaper and less stressful to trade its oil, thanks largely to a partial lifting of the European shipping insurance ban, a senior Iranian industry official said on Tuesday.

Iran and six world powers reached a deal on Sunday to curb Tehran's nuclear programme in exchange for limited sanctions relief, including a pledge to allow some Iran oil shipments to be covered by UK-dominated providers of shipping insurance.

U.S. and European Union (EU) sanctions that have slashed Tehran's oil exports from 2.5 million barrels per day (bpd) to around 1 million bpd remain in place and Washington has said that it will not allow exports to rise above current levels.

"Based on this deal, Iran's crude oil exports will not decline and our customers will be able to purchase oil from Iran without any anxiety and they will not have to look for alternatives," Ali Majedi, deputy minister for international affairs and trading, told oil ministry news service Shana.

"No new sanctions will be slapped on Iran's oil industry in the coming six months and our customers can clinch term contracts with Iran instead of spot oil consignments purchased from National Iranian Oil Company."

Western pressure on Iran's customers to find other suppliers has promted a surge in Saudi oil sales over the last year.

Washington's pledge not to pursue deeper cuts to Iran's exports over the next six months and the prospect of some shipments getting EU insurance coverage, comes as a welcome and rare relief for Iran's battered oil-based economy.

In addition to having to reduce their purchases to get waivers from U.S. sanctions, Iran's big oil customers have been put off importing even permitted volumes because they were unable to access the competitive shipping insurance market dominated by European companies.

"Iran crude oil exports costs increased because, besides us, our customers had also to pay more to insure crude oil cargoes," Majedi was quoted as saying.

"Based on the action plan signed between Iran and P5+1 (group of world powers), the European Union's insurance sanctions against oil tankers carrying Iran's oil have been lifted so crude oil exports will be done more easily, at lower costs and within the framework of international regulations."

The joint action plan posted by the European Union and U.S. governments says the West has agreed to freeze plans to further reduce Iran's crude oil sales and allow its customers, led by India and China, to import their current average volumes.

EU and U.S. sanctions on associated insurance and transportation services will only be suspended for oil sales up to current average levels, the document says.

The U.S. and EU decision to suspend sanctions associated with Iran's lucrative petrochemical exports is also a big boost from the nuclear deal.

"Since petrochemical exports make a major share of Iran's non-oil revenues, the lifting of sanctions on this industry will increase hard currency revenues for the state-run and private sectors," he said.


November 27th

## Gfk German Consumer Climate Survey: This survey projects Germany's consumers' economic climate (past and future economic conditions - on a monthly basis) for November. In the latest report for October 2013, the climate index slightly fell to 7;

## Second estimate of GB GDP Q3 2013: This report will present the revised estimate of the quarterly growth rate of the British economy for the third quarter of 2013; during the second quarter the GB economy grew by 0.7% (Q-2-Q); in the early estimate, the second quarter GDP expanded by 0.7%; if the growth rate remains unchanged or very close to the first estimate, it could have little effect on the GB pound;

## U.S. Jobless Claims Weekly update: This weekly update will refer to the changes in the initial jobless claims for the week ending on November 24th; in the previous report the jobless claims decreased by 21k to reach 323k; this next weekly report may affect the U.S dollar and consequently commodities and stocks markets;

## U.S Core Durable Goods: This monthly report regarding October may indirectly indicate the shifts in U.S. demand for commodities such as oil and gas. As of September 2013, new orders of manufactured durable goods rose to $234.3 billion; if this report shows another gain in new orders, then it could rally not only the USD but also commodities;

## U.S Crude Oil Stockpiles Weekly report: The EIA (Energy Information Administration) will release its weekly report on the U.S oil and petroleum stockpiles for the week ending on November 24th; the report will also show the changes in imports, refinery input and production, which could provide some insight behind the latest shifts in the price of crude oil in the U.S;

## EIA U.S. Natural Gas Storage Update: The EIA weekly report refers to the U.S. natural gas market; the report presents the latest developments in natural gas production, storage, consumption and rates as of November 24th;
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