17.02.2012 - XTB Market Snapshot

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Date: 2012-02-17 09:03

US economy expanding faster / Germany wants a full package for Greece on Monday...


US economy expanding faster

The US economy is growing and it is growing faster. The facts:

(+) the number of initial claims dropped to 348k last week and the 4-weeks average fell to 365k. To see such a good numbers one needs to move back to April 2008. Therefore, even if there is some seasonal adjustment noise (some argue that the models add to much seasonality, improving numbers during the winter at the cost of the summer – which we will see in the couple of months), the trend seems to be there anyway

(+) the number of housing starts (ca. 700k) in November-January period was the highest since late 2008, surpassing the numbers saw during a period when the government encouraged buyers with tax relieves. While the starts/households annual ratio is still at a miserable 0,6% against 1,4% 30-year average, the housing market has seen a steady improvement since April

(+) the Philly Fed and the NY Fed rose in February by 9 points combined – the two indices together correspond very well with equities and another rise this month is a strong argument for the bulls

(-) the core PPI rose by 0,4% m/m in January and the y/y remained at 3% - the highest since June 2009

To sum up, the data are good enough for bulls not to give up for as long as Greece is afloat. Having that said, the core CPI is to be watched today – the y/y figure has risen steadily since Dec’10 (from 0,64% to 2,24% in Dec’11) and should that process continue more members at the Fed might be uncomfortable with Bernanke’s vision of high-growth low-inflation view.

Germany wants a full package for Greece on Monday

We don’t know if Germany got the words from the Greek president or made some calculation by itself. Whatever the reason, the message is far more positive: Germany wants the full package for Greece on Monday. No bridge-loan, no mini-tranches but full-blown agreement. That lavishness might be smart as antagonizing the Greeks might be the worst things to do ahead of the parliamentary elections. If we really see the package by Monday we can actually have a room for some rally on equities and a return-rally on the EURUSD but we still struggle to see it as anything more than “buying time and hoping strategy” in light of a dramatic economic situation in Greece and general public discontent.

On the charts:

S&P500 futures – the solid data helped bulls defend what now seems to be a very solid support zone of 1330-1333 points and the index surged to 1355 pts. We can observe a triangle at the top of the multi-week rally which is somewhat awkward (especially as the horizontal line is at the bottom, not at the top of the formation) and may eventually become a trap for the bulls. However, at the moment we might easily see bulls testing ’11 highs (1373 points) within that consolidation formation

USDJPY – finally there is a rally time on the UJ; the reasons are there (better economic outlook globally, weaker data from Japan, highly expansive Fed and BoE) and the trend looks firm – even if the fast trend line is broken (it might be hard to sustain a recent pace), the bulls may counterattack at the main trend line (currently ca. 77,70)

OIL – a price of Brent has been rising steadily for last three weeks and has just moved above the key level of 120 USD responding to a better economic outlook given risks to a supply side (even without an escalation of the conflict with Iran). We do not see a ground for the price of oil to move above ’11 highs (of 126,75 USD) but a successful test of 120 USD could prompt a rally towards that level in the near term

Przemysław Kwiecień PhD, Chief Economist

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