Daily Economic Commentary: United States

[PipDiddy]

Better-than-expected US existing home sales plus some dovish comments by two Fed officials stirred a USD sell-off in yesterday’s trading. The USD fell across the board, with the dollar index closing at a 0.6% loss.

The US capitals markets put on a strong rally yesterday given the 10.1% m/m jump in existing home sales in October. The number of existing homes that were sold in October rose to 6.10 million from 5.54 million. It was only seen to rise to 5.71 million. Note that the government’s $8,000 tax subsidy for first-time home buyers will expire this December and people can avail of the program only up to October. This could be the reason behind the jump in sales.

Meanwhile, dovish comments from Chicago Fed President Evans and St. Louis Fed President Bullard did not help the USD’s cause. Evans noted that the Fed would likely keep its rates at a near-zero level until next year. Bullard, on a separate note, also said that the Fed would probably keep its debt-buying program active until mid of 2010.

The USD sunk following the reports.

Today, the US will publish its preliminary 3Q GDP at 1:30 pm GMT. Last month, the government reported a 3.5% growth in the country’s GDP. This growth, however, is seen to be downgraded to 2.9% due to the massive cuts in inventories. Volatility is expected around the time of the release so be on the lookout. Better-than-expected growth would likely be bullish for the capitals markets and other higher yielding currencies but bearish for the USD.

The CB consumer confidence will also be released today at 3:00 pm GMT. The index is anticipated to fall by a hair to 47.6 from 47.7. Confidence, as measured in this index, has been falling for the past couple of months. Pessimism in the markets could ensue if the decline continues.

Lastly, the FOMC will issue the minutes of their last meeting at 7:00 pm GMT. The report will contain the details of their last decision.

[PipDiddy]

The dollar managed to hold its ground yesterday as it generally closed the US session near its Asian open price. Are the dollar bears simply revving up for another drastic move today? With the amount of data on deck, we could be in for some major action once the US session opens.

No surprise with the US GDP report released yesterday. Although slightly lower than forecast, the US GDP growth for the third quarter of 2009 was revised down to 2.8% from the initial reading of 3.5%. Digging deeper into the report would reveal the downward revision was caused by the sharp rise in imports. In fact, it jumped almost 21%, the biggest quarter-on-quarter rise in 24 years.

The CB consumer confidence survey gave out a nice surprise. It showed that consumers grew more optimistic about the economy. It printed a reading of 49.5, which is higher from October’s revised up reading of 48.7. The survey showed that although consumers were still concerned about the current status of the job market, they were more confident about the future of the economy.

The Fed seems to share the same opinion. The FOMC meeting minutes released yesterday indicated that they, too, are very concerned about the weak job market. The Fed sees unemployment staying within the 9.3%-9.7% during the fourth quarter this year. However, they are a bit more optimistic about economic growth. The Fed believes that the economy would continue to show growth all the way to 2012.

Today will be another fun-filled day as there is a huge amount of data on the country’s economic cupboard.

At 1:30 pm GMT, expect to see the reports on durable goods orders, the weekly jobless claims and consumer spending.

The estimate is that durable goods orders report for October would show a rise of 0.5% while the core version, which excludes vehicles and airplanes, would show an increase of 0.7%. Goods are considered durable if their life span is more than three years. Currency traders tend to see rising durable goods orders as a sign of increasing economic activity and more traffic. Hah.

Meanwhile, the weekly jobless claims expected to show that 500,000 people claimed unemployment insurance for the first time for the week ending in Nov. 20. Although still astronomically high, the underlying trend in jobless claims is decreasing. Claims have consistently declined since its March highs... Then again, it might just mean that there are just no more jobs left to cut!

There’s also the report on consumer spending. The forecast is that consumer spending grew 0.6% in October, opposite the 0.5% decline seen in September. Since consumer activity makes up more than two-thirds of economic activity in the US, traders usually believe increased spending as a sign of improving economic conditions.

But wait, there’s more! How cliché...

Anyway, at 2:55 pm GMT, await the revision on the University of Michigan consumer sentiment survey. The expectation is for the initial 66.0 reading seen two weeks ago to be revised up to 67.1. The UoM consumer sentiment survey is pretty much on the same boat with the CB consumer confidence survey. Improving reading means that consumers are being more optimistic about the future of the economy.

And lastly... yes, this is the last, I promise... there’s the new home sales report at 3:00 pm GMT. The annualized number of new home sales in October is expected to have risen to 408,000 from 402,000 the previous month. If the actual figure comes out higher, we might see the dollar be sold off because of risk appetite.

Phew, that was a buy one. Get it? Buy is long... trading... Yeah, whatever.

[PipDiddy]

Dolla’s going down, down... down, down... It certainly seems that way, as the USD hit a 15-month low and fell across the board. Looks like Ben Bernanke isn’t getting his wish of a strong USD and has nothing to be thankful for this Thanksgiving – ha!

A slew of data was released yesterday, so be prepared for another long post. I know I am – I just had a double shot espresso! Let’s do this!

Dollar bears are on a roll, as risk appetite ruled yesterday’s trading session. Investors and traders looking for higher yielding assets as economic data released yesterday gave more evidence that recovery is on the way. There was a nice surprise in the unemployment claims report, which printed claims for the week ending November 21 to be at 466,000. This was a nice improvement from the previous week’s figure of 501,000. Some say that this could be an indication that reports next week will show that companies may have cut the fewest jobs in 20 months.

In other news, the University of Michigan consumer sentiment index was revised up from its initial reading two weeks ago. The index was revised to 67.4, up from the initial score of 67.1. Also, the housing industry is showing signs of improvement, as the annualized rate of new home sales rose by 6.2% to 430,000. It seems that everyone rushed to take advantage of government programs before they expired. Of course - consumers love the words "tax credit" don't they?

Consumer spending also picked up in October, rising by 0.7%. This beat forecasts of a 0.6% increase. Coupling this with employment and rising sentiment, could this be a sign that consumers are now less worried about the state of employment and are now more willing to spend?

Interestingly however, this came on the heels of the durable goods report, which came in much worse than expected. Initial projections were calling for rise of 0.5% in durable goods order, while core goods – which doesn’t include expensive items like airplanes and automobiles – would rise by 0.7%. However, yesterday’s report showed that durable goods orders fell by 0.6%, down from September’s revised 2.0% gain. At the same time, core goods orders fell by 1.3%.

Still, I was surprised to find that this didn’t dampen risk appetite yesterday. Normally, this would have caused a run back to risk aversion. But yesterday? Nada. It seems that everybody is just a dollar bear right now and quite frankly, I don’t blame them. There are growing concerns regarding the US’ deficit, low interest rates and diversification fears, all of which point to a bearish outlook for the dollar. This makes me wonder – Santa doesn’t use dollars now does he?

[PipDiddy]

And a happy Thanksgiving it was for the greenback! With most traders out enjoying their turkey dinners, liquidity thinned out and gave way to a strong one-way move yesterday. The greenback stayed on top of its game against most major currencies, except for the Yen - its safe-haven rival.

Even though the US economic calendar was on holiday mode, the greenback was able to benefit from risk sentiment. In fact, the greenback decided it was time to go out of its comfort zone and take cue from other economic reports apart from those from the major economies. And its country of choice? Dubai!

News of Dubai's credit problems, slated to be the largest sovereign default in almost a decade, hit the airwaves and caused quite a ruckus in the markets. Word on the grapevine is that Dubai begged for a "standstill" or an extension of their debt from international financial institutions. Credit-rating agencies, such as Standard and Poor's and Moody's, were not to pleased with this. As a result, they lowered their ratings for state-run companies in case Dubai announces an official default.

Now, you may be wondering... How the heck does this concern the US?! Well, this event seemed to have triggered a wave of risk aversion in the markets. I mean, we're talking about the worst sovereign debt default here! It just might give Argentina's sovereign debt a run for its money - metaphorically speaking, of course.

Anyway, the US economic calendar is empty again this Black Friday as most traders are still enjoying the holidays. But for those itching to catch some pips off the forex market's non-stop action, be mindful that thin liquidity is likely to cause high volatility!

[PipDiddy]

The dollar bulls, turkeys... or whatever animal you want to call them took a break from their rampage last Friday. They erased some of their gains from Thursday as risk appetite improved slightly.

Since the US economic calendar was clear of any data, it seems that currency traders realized they overreacted on Dubai credit concerns and unwound some of their positions. The question to ask right now is this: Has the value of the dollar finally bottomed out or was the move last week simply a chance for dollar bears to sell at a much cheaper price? I wish I knew too.

This week will prove to be exciting for currency traders as the employment situation report for November is due on Friday! The most watched section of the report, the non-farm employment change, is predicted to show that net job losses in November eased to 111,000 from 190,000 the month prior. Meanwhile, the unemployment rate is expected to remain unchanged at 10.2%.

Of course, as a forex trader, you’re probably wondering how price would move upon the release of the report. In the past few releases, the employment situation report was followed by a strong move in one direction for a few minutes before fading out quickly after. With that said, watch out for those false breaks of support and resistance levels!

Anyway, I’m getting ahead of myself... Let me get back on track... Seeing that a bunch of other data will be released before Friday.

Tomorrow, expect to see the ISM manufacturing PMI and the pending home sales report for November. Expansion in the manufacturing industry probably as the ISM manufacturing PMI is predicted to print a reading of 54.7 from 55.7 the month prior. It still means that the manufacturing industry is growing though, since the reading is above the 50.0. On the other hand, pending home sales is expected to have decreased by 0.2%. If the actual results of any of these come out higher, we might see risk appetite pick up and cause the dollar to lose some ground.

The ADP non-farm employment change, which is used as a leading indicator of the non-farm employment change, will be released on Wednesday. The estimate is 145,000 net jobs lost in November, down from last reporting period’s 203,000 net jobs lost.

Speaking of employment, there’s also the weekly report on jobless claims. The forecast is that 480,000 people claimed for jobless insurance for the week ending Nov 27.

Phew, that’s about it for this week. Although there are a lot of reports due, we might see some ranging behavior as currency traders await the results of Friday’s NFP report.

[PipDiddy]

The dollar failed to make any significant directional move against other major currencies yesterday. This kept most currency pairs range bound, bouncing off the day’s highs and lows.

The only data released from the US yesterday was the Chicago purchasing manager index for the month of November. The index is designed to determine whether manufacturers in the Chicago area are growing or shrinking. A reading above 50.0 means there is growth while a number below 50.0 means otherwise. The actual reading stood at 56.1, higher than the 53.4 forecast and an improvement from October’s reading of 54.2. According to the index, the jump in business activity was caused by growing sales and increased international demand.

On today’s economic cupboard we’ve got the ISM manufacturing PMI for November and the Pending home sales report for October at 2:00 pm GMT.

Just like the Chicago PMI, the ISM manufacturing PMI determines whether the manufacturing industry is growing or not. The expectation is a reading of 54.8. Since October’s reading stood at 55.7, economists are expecting that growth in the manufacturing industry to have slowed down in November.

Meanwhile, the report on pending home sales is expected to show a 0.4% decrease in sales October-on-September. Rising pending home sales is usually seen as good for growth because it sets off activity in different sectors of the economy – people are hired, mortgages are taken out, furniture is purchased, etc.

Risk sentiment has been generally pro-dollar since Thursday but if these reports come out grossly better-than-expected, we could see a reversal of this trend. Remember, sentiment can change on a dime so it’s to always best to be flexible!

[PipDiddy]

Looks like investors and traders are over the Dubai scares, as risk was definitely in play yesterday. The USD fell against most other majors, with the EURUSD pair hitting as high 1.5100 and the CHF hitting parity against the dollar once again.

Risk was boosted from good news across the globe, as well relatively positive data that was released from the US. Due to consumers rushed to the finish line to avail of tax credit schemes that were expiring in October, pending home sales of existing homes rose dramatically last month. The index rose for the 9th consecutive month, increasing by 3.7% to have a reading of 114.1 – it’s highest level in 3 years and up 29% from last October’s levels! This was a pleasant surprise, as it was expected that the index would fall by 0.4%. I expected we may just see that next month, when tax credits are no longer available. If only the real estate market had big discounts on Black Friday as well – ha!

The good mood yesterday wasn’t even bothered by the ISM manufacturing index fell to 53.6, which was a slightly bigger drop than what was expected. Still, with the index above the make-or-break line of 50.0, the manufacturing industry expanded for the 4th month in a row. Take note that new orders and exports were two of the only components in the index to rise. Wondering why? Well it might have to do with all the dollar weakness we have been seeing. The weaker the dollar is, the more attractive it becomes to importers who want to buy US goods. This in turn helps prop up the US economy. Ironic eh?

We could be in for more some big splashes later today when the ADP employment report is released at 1:15 pm GMT. The ADP predicts that job losses will fall to just 149,000, down from the 200,000 level we’ve been seeing the past couple of months. Also, set your alarm for 7:00 pm GMT, when the Fed’s Beige Book is released. The report includes analysis made by the FOMC with regards to the economy.

Tomorrow will also be pretty heavy, as the weekly unemployment claims and ISM non manufacturing PMI index will be available to the public. Will good results from these reports boost the risk once again? Well, I have a hunch that this data will have a mild effect on the market, as traders will be listening eagerly to Fed Chairman Ben Bernanke, who will be talking before the Senate Banking Commission at 10:00 am GMT regarding his nomination for another term as Fed head. With his term almost coming to an end, I wonder if even he wants to continue and push through for a second term...

[PipDiddy]

Ho hum, price action was relatively quiet yesterday as the majors consolidated ahead of the ADP non-farm employment report's release. A few hours after the release, the USD ended up slightly stronger than its major counterparts. How come?

Well, the ADP non-farm employment report showed that net job losses fell to 169K in November, which is a bit higher than the expected 149K increase in unemployment for the month. This weaker than expected report caused traders to be reluctant to take on more risk and stock up on the safe-haven USD instead.

On a more upbeat note, the ADP employment reading for October was revised from -203K to -195K, showing that net job cuts for the month were less than previously reported. Another employment report showed that job cuts fell by almost 72% from last year. However, these improved figures were not enough to stimulate investors' risk appetite.

The Fed was also particularly optimistic about the US economy as the Beige Book mentioned that economic conditions have improved modestly since the last report. Most districts reported an improvement in economic conditions while others said that conditions haven't changed. Consumer spending has picked up while manufacturing and housing continue to advance. Still, the Fed reiterated its pledge to keep interest rates at their low levels for an extended period of time. They also noted that credit conditions remain tight and that loan demand has weakened.

Today we'll take a look at the weekly unemployment claims and ISM non-manufacturing PMI. Initial jobless claims for the week are projected to be a bit higher than the previous week's 466K as it could print 479K in first-time unemployment claims. Another disappointing figure from the labor market could cause further USD buying. The actual figure is due 1:30 pm GMT.

The ISM non-manufacturing PMI is expected to show that the industry continues to expand as its reading for November could climb from 50.6 to 51.6. Watch out for that by 3:00 pm GMT.

Later on, Fed Chairman Ben Bernanke would testify on his nomination for a second term before the Senate Banking Committee confirmation hearing. Word on the grapevine is that the Fed Chairman could undergo some serious grilling today! So you better stay tuned for that around 3:00 pm GMT.

[PipDiddy]

After a disappointing start, the dollar made a strong push during the last part of yesterday’s session to end the day mixed. The dollar index closed with a 0.1% advance.

Initial jobless claims for the week ending November 28 came in much lower than the estimated 479,000. Claims fell to 457,000 from 462,000 that were logged in during the previous week. The latest tally is the lowest level since September 2008. The number of people who applies for insurance benefits are likely to go down as the economy improves.

Meanwhile, the non-farm labor productivity in the US during the third quarter was revised down to 8.1% to 9.5%. Still, this productivity level remains to be the best in about six years. A drop in productivity usually leads to inflation down the road because this translates to higher costs for the employers. These costs would then be transferred to consumers. In any case, productivity among laborers will likely stay at a high level given the scarcity of jobs at the present moment.

The results above would normally be bullish for the USD but the dollar still slid because of ECB President Trichet’s dovish remarks about the bank’s monetary policies.

Later in the day, the ISM services PMI came out with dismal figures. The index unexpectedly dropped below the 50.0 centerline to 48.7 from 50.6. The latest level now indicates contraction in the sector. This added more selling pressures on equities and other high yielding currencies which consequently boosted the USD further.

Today, several major economic accounts are due. The highly anticipated non-farm payrolls are projected to register about 119,000 lost jobs in November, which is much lower than the 190,000 count during the month prior. The nation’s unemployment rate, on the other hand, is seen to remain at 10.2%. Notice that the employment cuts are slowly improving by the thousands. If this trend continues, the overall unemployment rate would begin to better as well in the near future.

Data on US factory orders will also be released at 3:00 pm GMT. Orders are projected to post a marginal 0.1% gain in October after the 0.9% score during the previous month. We could be up for a positive surprise in this account as orders could have piled up as consumers looked ahead of the Christmas season.

Given the nature of these accounts, I remind you to be very careful with your trading positions as volatility will surely be on a high gear.

[PipDiddy]

Volatility shifted into high gear last Friday as the dollar managed to stage a stellar rally on account of an exceptionally better-than-expected NFP report.

Price action last Friday was surprising, to say the least, as the dollar has the tendency to move opposite equities. Whenever “good” and “positive” economic reports come out, risk appetite develops, causing equities to rally and the dollar to fall.

The NFP report, which measures the monthly net change in number of people who got hired (or fired), surprised the markets and showed that ONLY 11,000 jobs were lost. The actual figure was quite a leap as traders were expecting that economy shed 119,000 net jobs in November. Employment in the US also improved, as joblessness eased to 10% in November from 10.2% the month before.

This week’s high-profile reports are the following: Trade balance and unemployment claims (both due on Wednesday, 1:30 pm GMT), retail sales report (due on Friday, 1:30 pm GMT), preliminary University of Michigan consumer sentiment survey (due on Friday, 2:55 pm GMT).

The trade balance computes the difference in value between imported and exported goods in a given month. A negative balance means more goods were imported than exported. The forecast is that the US trade balance edged slightly higher to $37 billion in October from $36.5 in September.

Meanwhile, the unemployment claims for the week ending Nov. 5 would probably show 465,000 new claims, up from the week prior’s 457,000 figure.

The retail sales report is expected to lower too. The consensus is for a 0.6% climb in retail sales in November, down from the previous month’s increase of 1.4%. However, the core version of the report, which excludes automobile sales, is predicted to have improved and show a 0.6% rise, higher than the 0.2% increase seen the in October.

Lastly, economists are expecting the December preliminary UoM consumer sentiment survey to print 68.7. November’s figure stood at 67.4, which was revised up from 66.0. If the forecast holds, it would mean that consumers became more optimistic about the economy.

Would better-than-expected results from these reports cause the dollar to rally? It’s hard to tell, especially since we are approaching the holidays. Liquidity is dying down and traders might be starting to close up shop for the year. Unwinding of dollar shorts... Profit taking, anyone?