The dollar continues to reel from last weeks 50-basis point Fed rate cut, falling overnight to a fresh record low against the euro at 1.4129 and stumbling versus the sterling to 2.0316. Renewed fears of a faltering US economy will continue to drive the foreign exchange market this week as concerns of a possible recession weigh on the greenback. However, given the abrupt nature of the Feds aggressive ease, traders must keep a close eye on US inflation data for fear that the 50-basis point rate cut may strengthen inflationary pressure over the coming quarters.
Economic data slated for release this week will provide further clues on the US outlook, with reports to shed light on growth, the housing market, inflation, manufacturing, and consumer sentiment. On the whole, consensus estimates look for weaker data compared with the previous releases. The housing market slump will continue to lead the deterioration in US fundamentals, with August existing home sales seen falling to 5.49 million units, versus 5.75 million units previously and new home sales forecasted to drop to 830k units compared with 870k units in July. The final reading of Q2 GDP is estimated to be revised lower to 3.9%, from 4.0%, while the Feds preferred gauge on inflation is seen unchanged in Q2 with core PCE standing pat at 1.3%. Additionally, durable goods orders and Chicago PMI will provide more clues on the extent of the slowdown in manufacturing. Although durable goods orders are typically a volatile figure, estimates are calling for the number to fall by 3.1% in August, reversing the previous months 6.0% increase. The excluding transports reading is also seen declining, down by 1% versus a 3.8% gain a month earlier.
Tuesday
USD an economic crisis data
The data released earlier in the session reinforced the pessimism surrounding the US economy, with consumer confidence and housing reports pointing toward further weakness. The Conference Boards consumer confidence index tumbled to its lowest level in nearly 2-years, at 99.8 for September down sharply from August at 105.6. The dismal confidence figure reflects heightened market volatility, growing uncertainties stemming from the housing market and worries over the prospects of a US recession. There was also renewed evidence of the slumping housing market with existing home sales down 4.3% at 5.49 million units, versus 5.75 million units in July.
Dollar Shrugs off Soft Data
Traders will turn to several key reports due out in the Thursday session, consisting of Q2 GDP, Q2 PCE, August new home sales, weekly jobless claims and Q2 corporate profits. The final GDP growth figure is seen softer at 3.9%, down from 4.0% in the preliminary reading. The Feds preferred gauge of inflation, the PCE is unchanged from the previous quarter with the headline figure holding steady at 4.2% and the core PCE reading at 1.3%. Weekly jobless claims are seen creeping up slightly to 316k, from 311k last week.
Dollar Mired near Low
While the barrage of economic data released this morning was mixed, it had little impact in the foreign exchange market. Inflation reports showed the PCE price index softer than expected, with the headline reading at 1.8% y/y and down 0.1% m/m. The core reading edged up by 0.1% m/m, albeit weaker than anticipated while the annualized figure fell to 1.8% from 2.1%. August personal consumption rose by 0.6%, up from 0.3% while personal income drifted to 0.3% from 0.5%. The September NAPM index tumbled to its lowest level since November 2001, falling to 437.6 versus 445.0 from August. However, the Chicago PMI reading exceeded consensus estimates for a decline to 53.3, instead rising to 54.2 from 53.4 a month earlier. The University of Michigan sentiment survey unexpectedly fell to 97.9, coming short of forecasts for 99.0 and down from 98.4 from August. The sentiment survey echoes the Conference Boards dismal consumer confidence survey from earlier this week and is indicative of deteriorating economic fundamentals and recent market volatility.
The dollar sold off across the board to end the week at fresh record lows against the euro at 1.4277 and multi-week lows versus the sterling near 2.0450. Fundamentally, little has changed in the US economic and interest rate outlook but with sentiment biased toward further Fed easing, traders have been given the green light to dump dollars. The economy remains in a precarious state with the housing market yet to reach bottom and burgeoning fears of slipping into recession.
The dollar sold off across the board to end the week at fresh record lows against the euro at 1.4277 and multi-week lows versus the sterling near 2.0450. Fundamentally, little has changed in the US economic and interest rate outlook but with sentiment biased toward further Fed easing, traders have been given the green light to dump dollars. The economy remains in a precarious state with the housing market yet to reach bottom and burgeoning fears of slipping into recession.
Technical Bounce Props Dollar
Dollar found some respite in the Tuesday session despite little positive news to alter the US economic outlook. The $ rebounded from an 18-year low against the Aussie and recovered toward the 1.4140 level versus the euro. With another bout of dismal housing data, we perceive todays move as a technical one and a pause to further decline over the coming weeks.
The August pending home sales report showed continued deterioration, falling by greater than consensus forecasts, down 6.5%, albeit an improvement from Julys 12.2% fall. Traders will look to tomorrows August non-manufacturing ISM reading, durable goods orders, jobless claims, and factory orders. We expect continued weakness in the aforementioned figures, deteriorating from the previous reading.
The August pending home sales report showed continued deterioration, falling by greater than consensus forecasts, down 6.5%, albeit an improvement from Julys 12.2% fall. Traders will look to tomorrows August non-manufacturing ISM reading, durable goods orders, jobless claims, and factory orders. We expect continued weakness in the aforementioned figures, deteriorating from the previous reading.
Shockwaves hit financial markets
News that Northern Rock has had to go to the Bank of England for emergency loan funding sent shockwaves through already nervous financial markets today.Shares in London tumbled by 140 points at one stage, although with signs of resilience on Wall Street this afternoon the FTSE halved earlier losses to close 74.6 points lower at 6289.3, a fall of 1.2%.
On Wall Street, US investors took fright at further signs of the sub-prime contagion spreading to Britain and prices fell throughout the financial sector, including investment bank Bear Stearns, one of the biggest US casualties of the sub-prime crisis, and Countrywide Financial, Americas largest mortgage lender.
Despite weaker than expected retail sales data across the Atlantic, the Dow Jones Industrial Average saw an early fall of 100 points cut to just 4.1 points, and stood at 13,420.82 by the time the London market closed.
The gloom was deepened by official data showing an unexpected drop in US retail sales last month. Analysts said the weaker-than-expected figures will raise the pressure on the US Federal Reserve bank to cut interest rates by 50 basis points when it meets next week.
This growing evidence that the economy is slowing down rather dramatically and is going to conjure up increased fears of the R word, being recession, rather than economic recovery, said Al Goldman, chief strategist at A G Edwards.
Sterling fell to its lowest level against the euro in 14 months, at almost 69 pence, and fell two cents against the dollar to around $2.01.
US sales, excluding cars, fell 0.4% in August, the biggest decline for nearly a year, the Commerce Department said.
The August sales report showed declines from a range of other retailers. Clothing store sales slipped 0.1%, building materials and garden supply store sales fell 1.0%, and department store sales dropped 0.2%.
Meanwhile a Federal Reserve report showed that industrial production rose by a smaller-than-expected 0.2% in August as both manufacturing and mining output fell.
The manufacturing recovery already looks to have been faltering even before the impact of the credit crunch hits, said Jonathan Loynes at Capital Economics. Overall, a disappointing report that adds to the economic reasons for lower interest rates.
By the close, Northern Rock shares were down 31.5% to 438p, wiping ?846m off its stock market value. The shares were already down by 50% this year.
Losses were widespread in the banking sector, with specialist buy-to-let lender Paragon one of the biggest casualties. As its shares tumbled, it attempted to reassure investors, saying it had no need to resort to the Bank of England in order to continue trading.
On Wall Street, US investors took fright at further signs of the sub-prime contagion spreading to Britain and prices fell throughout the financial sector, including investment bank Bear Stearns, one of the biggest US casualties of the sub-prime crisis, and Countrywide Financial, Americas largest mortgage lender.
Despite weaker than expected retail sales data across the Atlantic, the Dow Jones Industrial Average saw an early fall of 100 points cut to just 4.1 points, and stood at 13,420.82 by the time the London market closed.
The gloom was deepened by official data showing an unexpected drop in US retail sales last month. Analysts said the weaker-than-expected figures will raise the pressure on the US Federal Reserve bank to cut interest rates by 50 basis points when it meets next week.
This growing evidence that the economy is slowing down rather dramatically and is going to conjure up increased fears of the R word, being recession, rather than economic recovery, said Al Goldman, chief strategist at A G Edwards.
Sterling fell to its lowest level against the euro in 14 months, at almost 69 pence, and fell two cents against the dollar to around $2.01.
US sales, excluding cars, fell 0.4% in August, the biggest decline for nearly a year, the Commerce Department said.
The August sales report showed declines from a range of other retailers. Clothing store sales slipped 0.1%, building materials and garden supply store sales fell 1.0%, and department store sales dropped 0.2%.
Meanwhile a Federal Reserve report showed that industrial production rose by a smaller-than-expected 0.2% in August as both manufacturing and mining output fell.
The manufacturing recovery already looks to have been faltering even before the impact of the credit crunch hits, said Jonathan Loynes at Capital Economics. Overall, a disappointing report that adds to the economic reasons for lower interest rates.
By the close, Northern Rock shares were down 31.5% to 438p, wiping ?846m off its stock market value. The shares were already down by 50% this year.
Losses were widespread in the banking sector, with specialist buy-to-let lender Paragon one of the biggest casualties. As its shares tumbled, it attempted to reassure investors, saying it had no need to resort to the Bank of England in order to continue trading.
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