Tuesday Morning Cheat Sheet: 3 Stories Moving Markets

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Major markets were mixed in Asia on Tuesday. Japan’s Nikkei fell 0.65 percent to 14,311.67, and the yen weakened to 99.145 against the dollar. In Hong Kong, the Hang Seng fell 0.31 percent to 23,180.52, and in Shanghai, the Composite fell 2.05 percent to 2,185.56. In India, the Mumbai Sensex climbed 0.31 percent to 19,804.03. In Australia, the ASX All Ordinaries index edged up 0.07 percent to 5,245.20.

European markets declined in midday trading. Germany’s DAX was off 0.19 percent, London’s FTSE was down 0.48 percent, and the Euronext 100 was off 0.34 percent.

U.S. stock futures at 8:45 a.m.: DJIA: +0.05%, S&P 500: +0.05%, NASDAQ: +0.14%.

Here are three stories to keep an eye on.

1. FOMC Meeting Begins

The Federal Open Market Committee sat down for the first part of a two-day policy meeting Tuesday. Many traders and economists expect the policymakers to announce a tapering of asset purchases at the conclusion of the meeting Tuesday, an event that could signal the beginning of the end of the Fed’s accommodative monetary position. Interest rates have already climbed dramatically over the past few months — currently at about 2.87 percent on the 10-year Treasury Note, up from 1.63 percent at the beginning of May — and investors, anticipating the move and expecting the dollar to strengthen, have already begun to move money out of emerging markets.

Policymakers are sitting down to meet at a critical time for the U.S. economy. The most recent jobs report was a total flop: In August, as in July, the employment situation report fell short of providing convincing evidence that the labor market was returning to full health. The United States economy added fewer jobs than economists expected and the unemployment rate ticked down, largely as the result of job hunters dropping out of the labor force. The share of working-age Americans who were employed or looking for work fell to 63.2 percent last month, its lowest level since 1978.

The headline unemployment rate did technically decline on the month, from 7.4 percent in July to 7.3 percent in August, but economists have largely blown right past it. Headline unemployment can often paint a rosier picture of labor market conditions than is warranted, and if observers stopped here, they would walk away with the wrong impression.

Fed policymakers will be trying to pierce the veil to determine the real health the labor market and decide whether the time is right to begin tapering asset purchases.

2. ZEW Indicator of Economic Sentiment

Economic sentiment increased in Germany in August, according to the latest ZEW Indicator of Economic Sentiment. The index increased by 7.6 points to 49.6, well above its historical average of 23.6. ZEW President Clemens Fuest commented:

“The financial market experts hold the view that the German economy is still gaining momentum. In particular, the experts’ economic optimism has increased due to the improved economic outlook for the Eurozone — although recently released economic data for Germany have fallen short of expectations.”

Overall expectations for the eurozone itself have increased. The index for economic conditions in the European Union increased 14.6 points to 58.6, while the current situation index increased 14.4 points to -59.7. The survey results suggest that while optimism is high, most experts believe — and the data support this — that the region won’t truly return to growth until the beginning of 2014, despite a temporary respite in the second quarter.

3. European Union International Trade

Eurostat reported Tuesday morning that the euro area logged a trade surplus of 18.2 billion euros ($24.31 billion) in July, up from 13.9 billion euros in the year-ago period. This compares to a balance of +16.5 billion euros in June. On the month (from June to July 2013), seasonally adjusted exports fell by 1.6 percent and imports fell by 0.1 percent. On the year, imports were flat and exports were up 3 percent.

Across the broader European Union, the trade balance was +10.4 billion euros ($13.89 billion), up considerably from +1.3 billion euros in the year-ago period. On the month, seasonally adjusted exports fell by 1 percent, while imports climbed by 0.3 percent.

Euro Trade

Source: Eurostat

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