Markets react to record revision of data in the US
The US economy contracted by 2.9 percent in the first quarter of 2014 following a revision of data from 1 percent. This represents the worst quarterly reading since 2009 and the biggest downward revision since 1976. The opinion amongst economists is that the first quarter slump does not represent the general state of the economy. The revision reflected a slowdown in healthcare spending, however, consumer spending and company orders combined with positive jobs data in the subsequent months have led policy makers to react to an improving economy. Forecasts indicate that the US economy will expand by 3.5 percent in the second quarter and 3.1 percent in second half of the year.
The poor reading on the US economy put pressure on the US dollar helping to lift commodities and most resource related currencies. Gold steadied from a low of $1,310 an ounce on Wednesday to $1,317. Longer-dated bonds also benefited on the prospect of the Federal Reserve having to keep rates low for longer. On Wall Street, the major indices experienced gains even if equity investors remain cautious. This morning Asian stocks reflected the sentiment in the US and headed for the biggest gain in a week.
This morning European stocks rebounded from a four-day losing streak. The Euro Stoxx 600 Index dropped 1.8 percent in the past four days. Violence in Iraq and weak economic indicators in the Euro-area continue to weigh on European markets.
BNP Paribas SA, is close to an agreement with New York’s top banking regulator. BNP is accused to hiding information regarding violation of sanctions involving Sudan, Iran and Cuba. The penalty may reach a record $9 billion.
The New York Attorney General on Wednesday filed a securities fraud lawsuit against Barclays PLC for giving an unfair edge to its US high-frequency trading clients. The lawsuit accuses Barclays that it promised customers best execution of trades, that is, the best possible price, but instead it took steps that maximized the banks’ profits instead.
The US is preparing a series of sanctions in order to keep up pressure on Russia to do more to de-escalate tensions in Ukraine. Violence has marred a temporary cease-fire in the region. A diplomatic solution is preferred by markets, however, the possibility of a return to sanctions appears to be increasing as rebels have broken the cease-fire agreement at least fifty times.
In Iraq militants have attacked one of Iraq’s largest air bases and seized control of several oilfields. Iraqi Prime Minister Nuri al-Maliki said that he supported the process of forming a new cabinet within a week, however, he has dismissed calls for a more ‘inclusive’ government. The Prime Minister is accused of fomenting the instability by refusing to share resourcing across the countries split tribal spectrum. While the supply of global oil remains largely unaffected, fear of escalation has driven oil prices upwards.
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