Eurozone finance ministers will meet in Brussels today to discuss a
new strategy to deal with member countries' sovereign debt problems.
With a very light calendar, a closed U.S. stock market, and no
significant earnings announcements until tomorrow, the meeting should
garner plenty of interest from the markets.
*US manufacturing continues to impress, inventories do not*
Industrial production numbers were the highlight of a whole host of
data released last Friday. Output grew by 0.8 percent month-on-month
in December 2010 while capacity utilisation also rose to 76 percent
from 75.4 percent. However, the 10 percent annualised increase in
production was primarily driven by a surge in utilities, which rose
1.5 percent due to the cold weather experienced in the U.S. in
December. Meanwhile, both manufacturing and mining were up 0.4
percent. Industrial production has now risen 5.9 percent from a year
ago, up slightly from 5.6 percent in November.
Business inventories failed to follow on from the strong performance
seen in industrial production. Inventories only grew 0.2 percent
month-on-month in November, while the market had been looking for much
higher gains of 0.7 and 0.6 percent respectively. Wholesale
inventories, which was released earlier last week and showed a decline
of 0.2 percent, therefore proved yet again to be a good indicator of
the overall change in inventories. The change in inventories suggests
that the contribution from inventories to fourth quarter GDP will be
smaller than the contribution of 1.6 percent annualised to the third
quarter.
*US CPI accelerates, retail sales flat adjusted for price changes*
Consumer prices grew no less than 0.5 month-on-month percent in
December as higher energy prices continue to hurt US consumers. The
core CPI, which does not contain energy prices, only rose 0.1 percent.
This translates into a 1.4 percent yearly increase in prices (up from
1.1 percent in November) while core prices still suggest disinflation
with an annual change of just 0.6 percent (down from 0.7 percent a
month earlier).
The upward trend in retail continued in December with consumers buying
even more goods than in November. Retailers reported an increase of
0.6 percent in December after a 0.8 percent increase a month earlier.
However, corrected for price changes retail sales barely managed to
squeeze out a positive growth rate. Nevertheless, consumers are
starting to get back into the swing of things in the U.S. and seem
capable of helping the economy grow further in 2011.
*US Consumer Confidence surprisingly falls*
As if industrial production, business inventories, retail sales, and
CPI were not enough, the University of Michigan also released its
initial take on consumer confidence in January and the report showed a
decline to 72.7 from 74.5 in December 2010. The market had been
looking for an increase to 75.5..
The weaker consumer confidence was a result of a large drop in the
Current Situation index, which fell to 79.8 from 85.3 a month earlier.
The Expectations index somewhat counteracted this by rising to 68.2
from 67.5. This means that the Current Situation index continues to
hover around the average recession reading of 79.4 while the
Expectations index is above its recession average of 61.9, but still
far below the average for an expansion of 81.5
*Equity Kickoff:* *Equities to open higher on strong JPMorgan
earnings*
European cash indices are expected to open higher Monday led by better
than expected earnings from JPMorgan Friday last week which made
S&P500 close at 1293. In terms of planned events there are few, but
markets will start to anticipate the earnings of Apple, to be posted
tomorrow.
JPMorgan came out strong and surprised to the upside, both on sales
and earnings, and given the sales growth there was not much room for
margin expansion. However, news worth noticing included: improvements
in asset management, commercial and investment banking, plus
investment in 150 new branches within retail banking and an extra
5,000 people added to the JPMorgan workforce. Combined, markets
interpreted this news as a sign of trust in the economic recovery.
Markets will start to anticipate the release of Apple's earnings
tomorrow. In the Q3 earnings season we saw that Apple incited an
increase in consumer spending, despite cuts in other areas. In terms
of numbers the Street's estimate in terms of EPS is 5.392 USD per
share vs. a prior reading of 4.640 USD per share and sales are
expected to reach 24,403 bln. USD vs. a prior reading of 20,343 bln.
USD. All in all markets expect a solid upbeat from Apple and if this
should come to fruition or even surprise to the upside then the S&P500
is expected to pass 1300, despite a drop in futures overnight.
In today's trading we are in for a follow on after strong JPMorgan
earnings and expect financials to rise a bit – so look out for
JPmorgan, Goldman and UBS. We expect the build up in markets to the
Apple earnings to have a positive spillover on European counterparts
like Philips.
Source: ActionForex.Com
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