INFORMATION DECK ABOUT YOUR KNOWLEDGE: Sequester

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Sunday, March 24, 2013

Sentiment Improved on Italy's Bond Auction US' Discussion about Sequester

ONG Focus | Insights | Written by Oil N' Gold | Thu Feb 28 13 01:00 ET

Market sentiment improved amid a successful Italian bond auction, a proposed meeting between top Congressional leaders and President Obama on Friday about sequester and improvements in economic data. Wall Street climbed higher with the DJIA and the S&P 500 gaining +1.26% and +1.27% respectively. In the commodity sector, the front-month contract for the WTI crude oil settled largely unchanged at 92.76 while the Brent contract declined for the second consecutive day to as low as 111.65 before ending the day at 111.87, down -0.75%. Gold slipped for the first time in 3 days with the benchmark Comex contract dropping -1.23%.

In Italy, the 10-year bond auction worth of 4b euro was well-received although the yield increased more than half a percentage point to 4.83%. The Treasury also issued 2.5B euro of a 5-yaer bond at 3.59%. As the election result raised political uncertainty in the country, Silvio Berlusconi said that a stable coalition had to be formed before March 15 when the Italian parliament is scheduled to begin. According to the former premier, “if a message of stability isn't sent before then, we risk paying a very high price”. After a meeting, French President Francois Hollande and Italian center-left leader Pier Luigi Bersani released a joint statement saying that “the economic crisis and the suffering surrounding it are at this point so serious that even the European Union cannot and must not remain deaf to the clear message that emerged from the vote in Italy”.

In the US, the market is awaiting a meeting between top Congressional leaders and President Obama on measures to handle sequester, i.e. about $85 billion in spending cuts, that would begin on that day. US economic data was mixed. Durable goods orders declined -5.2% m/m in January, following a +4.6% gain a month ago. The market had anticipated a drop of -4% previously. Durable goods orders excluding transportation gained +1.9%, following a +1.3% rise in December. Pending home sales soared +4.5% m/m in January after falling -4.3% a month ago. The market had anticipated a +2% gain for the month.

Today, the initial jobless claims probably slipped -1K to 361K in the week ended February 24. GDP might have revised up to +0.6% gain in 4Q12 from previous estimate of -0.1% decline. Chicago PMI probably slipped -1.6 points to 54 in February.

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Friday, March 22, 2013

Financial Markets Slumped on Concerns over Termination of QE and March 1 Sequester

ONG Focus | Insights | Written by Oil N' Gold | Thu Feb 21 13 01:56 ET

Financial markets weakened as the FOMC minutes showed that some members proposed to end QE earlier than previously envisioned. Wall Street slipped with the DJIA and the S&P 500 indices losing -0.77% and -1.24% respectively. Commodities also declined as the USD climbed after the minutes. Investors were also concerned about the March 1 sequestration as well as potential increase in Saudi Arabia oil supply. The front month contract for WTI crude oil plummeted to a 1-month low of 94.21 before ending the day at 95.22, down -1.49% while the Brent crude contract fell -1.63%. The benchmark Comex gold remained weak after plunging -1.63% to the 6-month low on Wednesday.

The minutes for the January FOMC meeting indicated that policymakers were more upbeat on the US economic outlook as driven by improved business confidence and household consumption. They acknowledged better employment conditions but stressed that 'the recovery in the labor market was far from complete'. The debate on additional QE remained rigorous but balanced. The focus was on the benefits and costs of additional asset purchases. While some suggested asset purchases to end 'well before the end of 2013', others warned of the 'significant' costs of ending purchases prematurely. We anticipate the Fed to continue asset purchases through the end of 2013 but some tapering would be seen in 2H13. There were also discussions on the summary of economic projections (SEP). According to the minutes, it 'generally judged that the addition of the median of participants' projections could be useful to better illustrate the central outlook for the committee'. Furthermore, 'many participants' suggested exploring the 'potential for using the SEP to convey information about issues related to the Committee's future asset purchases and the Federal Reserve's balance sheet'.

The market is getting worried about the automatic federal budget cuts (“the sequester”) that would likely take effect on March 1 as the federal spending would be reduced by US$ 85B this year and US$1.2 trillion over 10 years. On the dataflow, housing starts dropped -64K to 890K in January, compared with consensus of a fall to 925K. Building permits climbed modestly higher to 925K in January from 903K a month ago. The market had anticipated a milder increase to 920K. Today, the government would release initial jobless claims probably rose to 361K in the week ended February 17 from 341K a week ago while Philly Fed index might have improved to 1.5 in February from -5.8 in January.

On oil inventory, the industry-sponsored API estimated that crude inventory added +3 mmb in the week ended February 15 while gasoline and distillate stocks fell -0.12 mmb and -1.6 mmb during the week. The report from the EIA/DOE probably showed a -2 mmb increase in crude inventory. For fuels, each of gasoline and distillate stockpile might have slipped -1.4 mmb during the week.

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