Market review for May 19, 2017

In Germany this morning, the index of producer prices for industrial products rose by 3.4% compared with the corresponding month of the preceding year. This was the highest annual increase since December 2011 (+3.5%). In March 2017 the annual rate of change all over had been 3.1%, as reported by the Federal Statistical Office.

Compared with the preceding month March 2017 the overall index rose by 0.4% in April 2017 (unchanged in March and +0.2% in February).

In April 2017 the price indices of all main industrial groups increased compared with April 2016: Energy prices rose by 4.6%, though the development of prices of the different energy carriers diverged. Prices of petroleum products increased by 14.9% and prices of electricity by 8.2%, whereas prices of natural gas (distribution) decreased by 6.1%. Prices of intermediate goods rose by 4.3%, prices of non-durable consumer goods by 3.2%. Prices of durable consumer goods increased by 1.1% and prices of capital goods by 1.0%.

 The overall index disregarding energy was 2.8% up on April 2016 and rose by 0.3% compared with March 2017.

Asian stocks were slightly higher on Friday after a sluggish start, while the dollar held most of the gains it made overnight on strong U.S. economic data as some risk appetite returned despite caution over political turbulence in the United States.

European shares, which posted losses overnight, are on track for positive starts. Financial spread better London Capital Group expects Britain's FTSE 100 to rise 0.4 percent, Germany's DAX to climb 0.1 and France's CAC 40 to gain 0.3 percent on the open.

MSCI's broadest index of Asia-Pacific shares outside Japan reversed earlier losses to gain 0.1 percent, shrinking its weekly loss to 0.5 percent.

Japan's Nikkei rallied 0.1 percent, but remains headed for a 1.8 percent loss for the week.

Australian shares slipped 0.25 percent, widening weekly losses to almost 2 percent.

Chinese shares were little changed, up 0.4 percent for the week. Hong Kong's Hang Seng jumped 0.3 percent, set for a weekly rise of 0.1 percent.

The trend we have seen with Asian markets this morning has been one of mixed performances

While U.S. markets managed to stage a moderate recovery with investors finding good entry points after the heavy sell-off, Asian investors are likely choosing to err on the cautious side, especially with multiple event-risks in the week ahead. These events include testimony by former FBI director James Comey at a Senate hearing and an OPEC meeting in Vienna.

The Dow gained 0.3 percent, the S&P was up 0.4 percent and the NASDAQ jumped 0.7 percent overnight.

Strong economic indicators from the U.S. helped lift the dollar overnight.

It edged back 0.1 percent to 111.36 yen, but managed to retain most of Thursday's gains. It is set for a 1.7 percent fall over the week.

Data showed a sharp acceleration in factory activity in the mid-Atlantic region in May, and an unexpected drop in new applications for unemployment benefits.

Sterling strengthened slightly to $1.295. On Thursday, it broke through $1.30 for the first time since September after news of better-than-expected British retail sales growth. But it fell back on technical selling and a stronger dollar to close 0.2 percent lower.

The euro also climbed 0.1 percent to $1.111.It touched a six-month high on Thursday but surrendered the gains to close 0.5 percent lower.

In commodities, oil prices continued their gains for the third straight session, set to post a 4 percent weekly rise, on optimism that producers will agree to rein in output for longer.

U.S. crude futures hit a three-week high, and were last trading up 0.8 percent to $49.76 a barrel.

Global benchmark Brent was up 0.7 percent at $52.89, near a four-week high hit earlier.

Gold inched higher, clawing back some of Thursday's losses. Spot gold added 0.15 percent to $1,248.62 an ounce, set to post a weekly gain of 1.6 percent.

Moving to the US, The latest Energy Information Administration (EIA) natural gas storage data recorded a build of 68 Billion Cubic feet (Bcf) for the week ending May 12th. The build was above the 45 Bcf recorded last week and also above consensus estimates of a build around 61 Bcf.

Although stocks overall are 13.7% below the year-ago figure, the total is still 12.1% above the five-year average.

There was an increase in stocks across all regions for the latest week with the largest increase seen in the South Central region. Inventories continued to gradually recover in the East region after the late-winter draw with stocks now 24.6% below the year-ago figure and 13.4% below the 5-year average.

Natural gas prices peaked just above the $3.40 per mBtu level early in the week before fading towards the $3.35 area. Prices dipped lower again on Wednesday as risk appetite deteriorated sharply with natural gas dipping to the $3.23. Prices remained on the defensive on Thursday and dipped to test support below $3.20 ahead of the data.

The rebound in oil prices since middle of last week will bolster expectations of increased drilling activity and may act as a drag on prices. There were also some concerns that the political turmoil in Washington could have an adverse impact on trade negotiations and delay the expected increase in US exports.

The latest weather forecasts suggest gas demand will be slightly higher than normal seasonal levels, although the price impact should be limited.

Natural gas prices tested support around $3.18 per mBtu immediately after the data, but sellers were unable to sustain the pressure and there was a recovery back above the $3.21 level.

US Initial jobless claims declined to 232,000 in the week ending May 13th from 236,000 previously while consensus forecasts were for a small increase to around 240,000 for the week.

The four-week moving average declined to 240,750 from 243,500 previously.

Continuing claims declined once again to 1.898mn for the week ending May 6th from a revised 1.920mn the previous week and this was the lowest reading since November 1988. The four-week moving average declined to 1.946mn from 1.966mn previously and the lowest level since January 1974.

In the week ending May 6th, the largest increases in initial claims were for Texas and Georgia while the largest decline was seen in New York.

The unemployment rate among people eligible for benefits remained at 1.4% for the third week in a row.

Claims have been below 240,000 for the past 3 weeks and the sustained low level of initial claims continues to indicate that layoffs are running at very low levels.

The decline in continuing claims is also important evidence that the labor market is continuing to strengthen as discouraged workers are able to re-enter the labor market.

The data should underpin the Federal Reserve’s confidence in the labor market. Although second-half prospects look less certain, the claims data still suggests that further policy normalization is appropriate at the June meeting.

View our full economic calendar for a daily roundup of major economic events.


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