AM Report 17th March 15

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Global Wrap
A day of milestones for European share markets. The German Dax raced to record highs, the pan-Europe Stoxx600 traded over 400, its highest level since 2007 and the Swiss SMI index pushed back towards levels prevailing before the SNB relented on its EUR/CHF peg earlier this year. Awash with liquidity, a weakening EUR and improving data all playing apart in the seemingly relentless rally in Europe. The Dax rose 2.2% whilst the broad Stoxx600 ended up 0.90%. A buoyant session stateside too, with the major bourses up well in excess of 1%. Following 3 weeks of losses the market recouped some ground as economic data underwhelmed and crude fell to its lowest level in 6 years. The S&P500 ended the session up a bright 1.35%.

The Fed’s Empire State Manufacturing survey softened a touch but remained consistent with activity expanding at a modest pace. The survey registered general conditions at a 6.9 reading, down from 8.0 previously. All subsets bar ‘future conditions’ also fell and even that category sits well below levels seen in the last 6 months of 2014.

U.S. Industrial Production data was weaker too, not only this month’s release at +0.1 v +0.2% expected, but also the prior month which was downgraded sharply from +0.2 to -0.3%, a worryingly large revision indeed. Output from utilities was up due to the cold weather but manufacturing, reflecting the bulk of all industrial output, declined for the 3rd straight month, a development the Fed attributed largely to weak demand for long-lasting goods. Output for motor vehicles and parts fell 3%. Most other industries also saw declines.

Prices for the U.S. crude-oil benchmark WTI, marked their lowest settlement in 6 years on Monday, as investors remained fixated on a supply glut. Prices took a hit despite a report by the OPEC that forecast a drop in U.S. output by the end of the year. April crude settled at $43.88 a barrel, down 96 cents, or 2.1%. Prices for the front month contract haven’t settled at a level this low since March 11, 2009. Last week, they fell 9.6%.

The USD edged lower led against most pairs with only the JPY backing the trend. The EUR/USD sits about 0.7% higher from yesterday’s fresh 12 year low seen in Asian trade (1.0565 v 1.0458). AUD and NZD drifted slightly higher in the EUR’s wake. The JPY was softer however as buoyant stocks gave a risk on tone. The USD/JPY is at 121.40 from 121.10 seen yesterday.

Not forgetting Greece, the Germans who have played hardball throughout recent negotiations, were still sounding in no mood for compromise. German Finance Minister Schaeuble said “doesn’t know what to do with Greece now, new Greek government has destroyed all the trust that has been rebuilt”. Meanwhile Drgahi said he sees “steadily recovering econ situation in Euro area, optimistic about the outlook but must press ahead with reforms, EZ economy too intertwined to entertain reversing integration process”.

Seeking to contain a virulent strain of avian flu, U.S. authorities are weighing tougher restrictions in Arkansas in a bid to minimize international trade disruptions and contain the virus in the heart of America's poultry region. The H5N2 flu discovered last week is the state's first case of a strain that causes massive internal haemorrhaging in poultry, can kill nearly every bird in an infected flock within 48 hours, and is likely to impact chicken stocks and prices.

Hedge funds exited gold at the fastest pace in more than 4 months on mounting speculation the Federal Reserve is getting closer to raising U.S. interest rates that have been near zero since 2008. Money managers cut their net-long wagers for a 6th week, U.S. government data show. Investors sold 21.9 metric tons of bullion held through exchange-traded products last week, the biggest reduction since November. Gold itself edged lower overnight bucking the softer USD trend.