Empire State Manufacturing Survey

The May 2014 Empire State Manufacturing Survey indicates that business conditions improved significantly for New York manufacturers. The headline general business conditions index jumped eighteen points to 19.0, its highest level in nearly four years. The new orders and shipments indexes also posted sharp gains, rising to 10.4 and 17.4, respectively. The unfilled orders index rose to a level close to zero. Price indexes were slightly lower, suggesting a small degree of slowing in price increases, with the prices paid index falling three points to 19.8 and the prices received index falling four points to 6.6. Employment expanded significantly; although the average workweek index held steady at 2.2, the index for number of employees rose thirteen points to 20.9. Indexes for the six-month outlook were highly optimistic, with the future general business conditions index rising to 44.0, its highest level in more than two years.

U.S. producer prices posted

U.S. producer prices posted their largest increase in 1-1/2 years in April as the cost of food and trade services surged, hinting at some inflation pressures at the factory gate.
The Labor Department said on Wednesday its seasonally adjusted producer price index for final demand rose 0.6 percent, the biggest gain since September 2012. Producer prices increased 0.5 percent in March.
Economists polled by Reuters had forecast prices received by the nation’s farms, factories and refineries rising 0.2 percent. In the 12 months through April, producer prices advanced 2.1 percent, the biggest gain since March 2012, after rising 1.4 percent in March.
Producer prices have been volatile in recent months, driven by swings in the trade services category. The PPI series was revamped at the start of the year to include services and construction.
Its short history and volatility makes it a bit difficult to discern a trend. While price pressures are creeping up at the factory gate, the overall inflation backdrop remains benign given the slack left over from the recession.
Last month, food prices surged 2.7 percent, the biggest rise since February 2011. That followed a 1.1 percent increase in March and marked the fourth consecutive month of gains in food prices.
A drought in California is putting upward pressure on food prices, leaving Americans confronting higher prices at the supermarket.

RSI Trend Line Charts

 RSI indicator to use it as an indicator to help identify whether trend would continue or if the supply and demand zones were strong enough to hold. While discussing the indicator in detail most traders decided to apply it to the broad markets to see if it had any use as a market trend predictor. This is the modified indicator did prove its worth. As with any technical indicator, the RSI should be used as a confirming indicator, not a decision making tool.  Price and supply and demand should be the only thing you use for your decisions to enter or exit the markets. The RSI offered both positive and negative divergence signals to warn of trend changes before the 2008 credit bubble burst and the 2009 bottom.  The trend changes were confirmed with the RSI moving below 40 bearish  or above 60 bullish .

RSI Trend

Money Markets Stock Market News

Money markets rates have moved around in recent weeks as the amount of excess funds held by banks lowered. But much of that appeared to have been the result of typical month end volatility brought on by holidays. They've since stabilized somewhat. One step the ECB could take would be to suspend their weekly funding drains, or sterilizations, that absorb the roughly EUR 170 billion in government bonds on its books from a previous bond purchase program. German and French central bankers have signaled their support. But the effects on short term rates might be limited because banks may simply borrow less from the ECB's regular lending facilities. Economic growth A key question is whether the current period of super low inflation is upending tepid recovery that started last spring. So far it hasn't. In fact, the recovery seems to be gathering steam. Purchasing managers reports and other data point to an acceleration in GDP growth during the first quarter, led by Germany. Retail sales in the bloc grew each month of the first quarter for the best quarterly rise since 2006, according to ING Bank.
That runs counter to one of the telltale signs of excessively low inflation or outright deflation: that consumers delay spending in hopes that prices will fall. Instead, low inflation seems to be giving households a much-needed income and confidence boost. Regulators have attempted to tighten bank rules by forcing them to raise additional capital and by adopting a raft of other rules contained in the Dodd-Frank financial reform law. However, there is growing concern that such rules are forcing financial activity into the "shadow banking" sector, outside the purview of regulators which is partly what led to the crisis in the first place.

Financial News

Keystone XL pipeline

 RBC Capital Markets notes that the highly anticipated decision on the Keystone XL pipeline, which would carry Canadian oil to US refineries, has been delayed again, and prospect of an approval by year-end appears slim. Firm says the delays have pushed producers toward alternative solutions, most importantly rail shipments, which have absorbed a surprising amount of capacity. "While Keystone XL is still a very relevant and important project, it no longer appears to be as crucial as it once did to shaping Canada's energy export future," RBC says, concluding that its impact on CAD has thereby likely diminished. The situation remains fluid, however, as tougher oil-by-rail rules introduced by Canada earlier this week could put the pressure back on pipelines.

Russian bonds yields

Naturally, Russian bonds yields are trading higher after the downgrade to just above junk status. The Central Bank of Russia (CBR) was expected to leave rates on hold at +7%, nonetheless bank officials deemed it necessary to hike the key policy by 50bps to +7.5%. From a Russian perspective, further aggressive rate hikes are neither welcome nor warranted given the obvious slowdown in growth. However, it may be a necessity given that the capital outflows from Russia are likely to accelerate over the coming months. The CBR may have no choice but to resort to capital controls or higher interest rates. CBR officials estimated that the net capital outflow for the first quarter at $64B to be the same as the whole of 2013.

British economy

There is no arguing that the British economy has enjoyed a strong recovery, but that does not mean that policymakers at the BOE see eye-to-eye on the health of the economy or inflation. The minutes of the previous policy meeting indicated that Monetary Policy Committee members were “uncertain” about the amount of spare capacity in the economy and the medium-term inflation outlook. Importantly, the MPC voted unanimously to maintain the benchmark interest rate at 0.50%. With the unemployment rate down to 6.9%, there is growing speculation that we could see a rate hike as early as next spring, although the BOE has done its best to dampen expectations of a rate increase.