Global Markets

U.S. weather: does it really affect stocks?

26 February, 2014 | Posted By: Oren Laurent

By Oren Laurent
President, Banc De Binary

We’re all guilty of remarking on the weather obsessively in our social interactions. When is the last time that it rained and you refrained from stating the obvious that it’s wet outside? And when the sun shines, it is simply impossible not to comment and share the joy. Normally, talk about the weather is merely an opening, but this year’s winter in the United States has gone well beyond the entrance hall and crossed into the trading room in Banc De Binary’s offices; the weather has been severe enough to affect the world stock markets and multiple tradable assets.
Natural gas has jumped to its highest price in five years as weather forecasters predict a further round of freezing weather across the northern Rockies, Midwest and Northeast. The U.S. Energy Information Administration data indicates that close to half of households use gas for heating and those in the affected Midwest are the largest consumers. High demand for the heating fuel sent inventories falling to their lowest in a decade and sent bullish bets on gas futures soaring.
The coldest January in two decades has also affected the housing markets. Builders started 880,000 new homes at an annualised rate last month, according to data from the Commerce Department, down 16% from December. In the Midwest, construction was at a record low.
The weather has also deterred customers from visiting car dealerships and retailers; it has closed offices, cancelled flights and caused power cuts – a bad combination for the economy. At the start of February, a 3.1% decline in vehicle sales in January was announced after an unexpected 4.3% fall in durable goods orders in December, sending the S&P 500 stock index down.
Prior to the release of data from the second quarter, it will be difficult to ascertain the exact effect of the weather on the stock markets and what the other fundamentals are doing. Long-term investors will be holding out until second quarter results and will be largely discounting the current negative effects on the markets. However, that should not hold short-term investors back from profiting.
Binary options traders who typically trade with shorter expiry times are the ones benefitting from the snow storms. In the next few weeks, American weather will likely continue to be as predictable as any other fundamental market-moving event.
In the foreign exchange market, the dollar has been sliding against the other major currencies. The euro-dollar in particular is one to watch thanks to positive data from the Eurozone coinciding with the poor U.S. data. Fourth quarter growth in the GDP of Germany and France exceeded expectations and German business confidence is climbing. Gold traders too have reason to execute short term trades. Weakness in the dollar is increasing the commodity’s currency-hedge appeal; it rose to a three month high of over $1,300 last week, recording its biggest weekly gain in the last six months.
So if you’ll allow me the cliché, now is a great time to ride out the storm.