European equity markets look set to ignore the fall on Wall Street and in Asia and rally this morning. Yesterday’s Spanish bond auction was disappointing with the government unable to find buyers for the maximum amount of debt it wanted to sell. Optimists point out that Spain has now covered 47% of its borrowing requirements for this year, but the relief rally seems to stem from IMF approval for a €5.17 billion loan to Portugal on the basis that the adjustment program remained on track. The euro sank below 1.2100 in early trading some 2¢ below its level on Tuesday.
German February factory orders were a little weaker than expected yesterday with an increase of 0.3% well below expectations of 1.5% notwithstanding the upward revision to January data. Back revisions meant that the annual rate of growth in January was revised down to -6.0% from -4.9%, leaving February annual growth at -6.1%. Factory orders are extremely volatile and there are clearly some correlations with the Chinese Lunar New Year holiday, which has distorted import demand as factories in the Middle Kingdom shut down.
The MPC meet today and are expected to keep Bank Rate unchanged at 0.5%. The jury is still out as to whether asset purchases will be extended in May as the current three-month programme comes to an end. On that basis, while we believe that the quantity of purchases remains unchanged, the closeness of the vote will be much more important in signaling the Committee’s intentions. Unfortunately, we will not get that information for another two weeks.
US weekly jobless claims continue to run around the 350,000 level, which is consistent with a 250,000 increase in non-farm payrolls. Today’s data will not be included in tomorrow’s payrolls report but will signal the direction of any revisions subsequently. The market is looking for claims to sink from 359,000 to 355,000 last week but yesterday’s ADP employment report and the strength of the employment subcomponents of the ISM Manufacturing and Non-manufacturing surveys point to a sub 350,000 outturn.
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Posted in Daily Market News on May 30 2014