Market Update - 4 March 2013

• On Friday night Barack Obama signed into law the sequestration cuts that will save the US government (cost the economy?) $85bln this year. GDP would have grown by about 2.5% in 2013 but the cuts will shave about 0.5% off growth, it’s not a disaster but the longer the deadlock continues, the larger the risk of a confidence shock. The next budget extension deadline is on the 28^th March.

• So perhaps it’s little surprise the markets shrugged it off, choosing to focus more on the strong domestic data. Personal incomes fell more than expected but that mostly reflected the adjustment following extra payouts ahead of the higher payroll tax.

• USDJPY was an interesting pair on Friday night, the buyers came in and bid the pair up back above 93.00 in a flurry and its currently hovering around 93.50 with resistance coming in at 94.00 and 94.77, a break would see it test 95.00.

• USDMYR also opened higher this morning on the back of strong USD, the pair prop back up above 3.1000 this morning, currently trading at 3.1100. My personally view remains unchanged, range trade for now with bias on the upside.

• The Markit PMI was slightly softer at 54.3 from 55.2 but UoM consumer confidence rose to a 3 month high and the ISM manufacturing PMI hit a 2 year high at 54.2 from 53.1.

• The S&P closed up 0.23% while US treasury yields fell 3.5bps to 1.84%. Industrial commodities were softer, oil off 1.5% and copper down 1.4%, gold held its ground at $1577

• From the FT, Warren Buffet said in his annual letter to share holders “Charlie [Munger, vice chairman] and I have again donned our safari outfits and resumed our search for elephants”. “Our elephant gun has been reloaded, and my trigger finger is itchy.” – they are ready to go buy stuff again after having just acquired Heinz.

• In Europe retail sales grew at the fastest pace in 5 years in Germany after a poor December, but unfortunately data from the rest of the continent reminded us the place is still a basket case:

• Manufacturing PMI’s in Italy and the UK deteriorated significantly, remained poor in France and grew marginally in Germany.

• Unemployment across the region hit a record high at 11.9%, the headline figures are a horror story in themselves but the youth figures are rising even more quickly.

• Italy’s politicians look unlikely to last long before another election is required, with no certainty the good guys will win.

• Stocks fell across the region, the Eurostoxx 50 down 0.64% with the FTSE the only index up, +0.28%. Despite the poor data in Britain, a lower sterling and more printing from the BOE expected this week helping things along there. The ECB will also announce rates on Thursday before the payrolls numbers in the US on Friday.

• China yesterday released its non-manufacturing PMI figure, and, like it’s manufacturing counterpart on Friday, it plunged to a 5 month low. The government has said it will not allow property prices to rise any further but it won’t be tightening monetary policy any further in the wake of recent softening in data.