GLOBAL ECONOMIC REVIEW

GLOBAL ECONOMIC REVIEW



( DEc 24th )




Global - U.S Markets



U.S. shares edged higher into record territory on Tuesday, backed by stronger-than-expected manufacturing data that in turn spurred U.S. Treasury yields to 2-1/2 year highs on a belief the economy is on a sustained path of recovery.



In thin pre-Christmas holiday trading, the positive economic data contributed to gains for the U.S. dollar against its major trading partners such as the euro zone and Japan.



An errant trade sent copper prices to their highest level since April in New York COMEX trade, a source familiar with the matter told Reuters. Prices were adjusted down after the discovery of the error, the source said..



U.S. share prices posted modest gains. The Dow Jones industrial average rose 62.94 points or 0.39 percent, to close at a record 16,357.55. The S&P 500 gained 5.33 points or 0.29 percent, to hit a record 1,833.32. The Nasdaq Composite added 6.513 points or 0.16 percent, to finish at 4,155.417. The U.S. stock markets closed early at 1 p.m. EST.



"Investors have taken their positions for the year, so what we're seeing is a market pause to digest the very strong rally we've had," said Adam Sarhan, chief executive of Sarhan Capital in New York.



U.S. durable goods orders for November surged 3.5 percent on rising demand for goods across a spectrum of industries, from aircraft to machinery and computers and electronic products.



In a second report, government data showed November new home sales fell from a five-year high, dropping by 2.1 percent. However, October's sales were revised to their highest level since July 2008.



The stronger economic data supports the U.S. Federal Reserve's decision last week to start trimming its monthly bond purchases as the economy might be gathering more upward momentum into early 2014.



"The path of least resistance right now is lower bond prices and higher yields," said John Brady, managing director of interest rate futures sales at R.J. O'Brien and Associates in Chicago.



In thin trade, the benchmark 10-year U.S. Treasury bond fell 13/32 of a point in price, driving the yield up to 2.98 percent and just shy of a 2-1/2 year high.



ASIAN AND EUROPEAN SHARES RISE



Japanese equity prices hit a six-year closing high of 15,889.33, putting the Nikkei on track for its best year since 1972.



Shares in Shanghai closed with modest gains, with an early rise cut down by weak banking stocks.



The People's Bank of China injected funds through normal channels for the first time in three weeks, although traders warned that conditions remained tense.



"The relief is quite palpable after the cash injection by the PBOC today," said Jackson Wong, Tanrich Securities vice-president for equity sales.



Much of Europe's stock markets were closed ahead of the holiday. The euro zone blue chip Euro STOXX 50 rose 0.06 percent on Tuesday but rose 4.5 percent in the five days leading into the Christmas break. That's the best week before the holiday since 1999, Thomson Reuters data showed.



In the currency markets, the U.S. dollar index, a measure of the greenback's value against a basket of six currencies, rose 0.09 percent to 80.531 in thin trading. The euro fell 0.17 percent to $1.3673.



GOLD SET FOR BIGGEST ANNUAL LOSS IN 32 YEARS



Gold edged higher as bargain hunters appeared after prices fell to six-month lows of around $1,200 an ounce. U.S. gold futures' benchmark February contract settled up 0.5 percent at $1,203.30.



However, the improving global economic environment, coupled with a rally on world stock markets, has driven investors away from traditional safe-haven assets such as gold. For the year, gold is down 28 percent and set for its biggest annual decline in 32 years.



In the oil markets, civil unrest in South Sudan pushed Brent crude $112 a barrel. U.S. oil futures rose 0.26 percent to $99.17 a barrel.



Financial markets were clearly in holiday mode Tuesday, with scant market reaction to what would normally be considered blockbuster U.S. data sets. U.S. durable goods rose a whopping 3.5% (ex-transportation +1.2%), well above median of +2.5%. The focus was on the key "non-defense capital goods orders excluding aircraft" component, viewed a proxy for future capital spending, which rose by 4.5%, the largest increase sine January 2013. The headline durables increase was aided be a surge in Boeing orders (civilian aircraft orders rose 33.3% in November versus -2.0% in October) but there was strength throughout the report for the exception of primary metals (-1.0% )and electrical equipment and appliances (-1.2%). Bob Sinche, global strategist at Pierpont Securities, reminded that the durable goods data through October had been very disappointing, with core capital goods orders down three out of the four months from July to October. Now comes a "big turnaround in November," with core orders up 4.5% and very close to the June record high, he said.



Ten-year U.S. treasury yields were closing around 2.985% Tuesday, at the day's high and within striking distance of the 3.0% high yield seen September 6, before the August U.S. non-farm payroll release.



The dollar Tuesday initially tracked U.S. Treasury yields higher, but became more sluggish as the 10-year note yield edged closer to the September highs. Improved risk appetite also prompted profit taking on non-dollar short positions and gave a lift to the euro and other pairs. The euro was trading at $1.3675 in afternoon action Tuesday, in the middle of the day's range of $1.3655 to $1.3714. Dollar-yen held at Y104.30 in afternoon action, in the middle of a tight Y104.10 to 104.41 range.



On the commodities front, spot gold held around $1204.75/oz in afternoon action, in the middle of a $1196.30 to $1204.00 range. The precious metal dipped to lows around $1187/$1188 last Thursday and Friday but failed to revisit the 2013 low of $1180.50, seen June 28, as had been expected. Nevertheless, the subsequent bounce has been tepid and the market continues to view a move to the June lows, and below, as only a matter of time.



United States



* Looking ahead, Thursday's U.S. data includes weekly jobless claims (Median at 340,000) which will be closely eyed.



* November U.S. new-home sales slipped 2.1% to a 464,000 annual adjusted rate, still above expectations. October's new home sales were revised up to a 474,000 rate from 444,000. September was also revised up to 403,000 from 354,000. Despite the headline new home sales showing a decline, the report was relatively strong with those significant upward revisions to the previous two months. The supply of new homes sales fell 6.7% to 167,000, bringing the months' supply at the current sales rate to 4.3 months, down from 4.5 months in October. Sales in the NE were up 15.2%, bit om tje Midwest were down 26.6%. Sales in the South dropped 9.1% and in the West were up 31.1%. The median new home sales price was +4.5% to $270,900 and is +10.6% yr/yr. Unadjusted new home sales were 33k in Nov vs. 38k in October. "At 447,000, the three-month moving average through November returns the pace of sales to where it was in March (449,000) and June (442,000), prior to the rise in mortgage rates over the summer," said Barclays U.S. economist Michael Gapen.



* U.S. stocks closed with modest gains. The DJIA closed up 63 at 16,357.55, the Nasdaq Composite up 7 at 4155.417 and the S&P 500 up 5 at 1833.32 - again life-time high closes for the DJIA and S&P 500. Earlier, DJIA and Sthis news may affect the Japanese yen and consequently commodities prices;
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