Economic Data Pushes Markets Higher

Published by Filipe R. Costa on Fri, 18/01/2013 - 11:33 in
China missile

Daily Market Commentary for January 18: Economic data reported yesterday in the US and overnight in China has been very positive and triggered more buying at a time investors were lacking strength.

Initial jobless claims dropped to 335,000 and surprised economists and analysts who were expecting a much higher value near 368,000. The drop was significant and has a special flavour as claims are now at the same level they were on January 2008. In terms of economic recovery this means the job market is definitely on the right track and may add to the possibility of FED abandoning QE3&4 during 2013. Gold dropped as a reaction to the report but then rose again as the Philly Fed activity index showed contraction. Gold traders will have tough times to decide wether to buy or sell the precious metal as there are strong forces pushing either side. I keep a negative view on the metal but don’t believe it can go much higher or lower for now, so sideways is the main route expected.

Adding to the positive data, housing starts in the US increased 12%. After a long dormant period, the housing market seems to be recovering, which is absolutely crucial for a wide recovery in the economy as the sector pushes many other with it.

Overnight the Chinese showed their GDP was growing at a pace of 7.9% in 4Q. That was better than expected and put and end to many consecutive drops. Retail sales were also reported above expectations and contributed to optimism in Asian markets which spread this morning to European equities.

The Euro continues strong around 1.3360 but fundamentals behind it don’t add to the current bullishness. I’m a seller at these values for two main reasons: firstly, I think the European economy is not as good as many leaders are trying to make us believe; secondly, I believe volatility will rise with the debt ceiling debate and thus risky assets will suffer, including the Euro.