Daily Economic Commentary: United States

[PipDiddy]

Volatility was sky high for the greenback last Friday with the release of the US NFP report. US non-farm employment change came in worse-than-expected at -85,000 versus the -3,000 estimate. The market initially sold off the dollar only to buy it up soon afterward.

Interestingly, the NFP employment result was almost in line with the ADP’s own version of employment change. Based on the ADP’s tally, 84,000 payrolls were cut in December. November’s NFP score, however, was positively revised to 4,000 from -11,000. But despite the unexpected drop in payrolls, the US jobless rate remained flat at 10%.

The week will kick off with the release of US’s trade balance tomorrow (January 12). According to the market’s consensus, US’s trade deficit probably expanded to $34.9 billion in November from $32.9 billion.

On January 13, The Fed’s Beige Book report and the government’s budget balance for December will be published. The government’s budget deficit in December is estimated to be at $84.9 billion, better than the $120.3 billion gap during the month prior. An $84.9 billion deficit means that the government funded the same amount of spending through borrowings. Even if the latest mark will be an improvement from the previous month, still, this places some selling pressure on the USD since an increase in the government debt effectively lessens the attractiveness of US bonds.

On January 14, data on US retail sales and unemployment claims will be issued. The headline retail sales for the month of December probably rose by 0.4% on top of the 1.3% gain in November. The core account, which excludes sales of automobiles, is expected to have posted an increase of 0.3% as well following a 1.2% rise during the previous month. The initial jobless claims for the week ending January 9, on the other hand, is projected to have risen slightly to 438,000 from 434,000 during the prior week.

To cap the week, US’s CPI for December and UoM consumer sentiment in January will be reported on the 15th. Core CPI is projected to be a tad higher at 0.1% in December after coming in flat at 0.0% in November. The headline CPI, however, is estimated to have cooled off to 0.2% from 0.4%. On a separate report, consumer sentiment likely improved to 73.7 in January from 72.5.

As you can see, the week will be very hectic in the US given the release of several top tier reports. This only means more US dollar movement, thus, more chances to profit or lose. Better be on the lookout!

[PipDiddy]

The dollar found itself on the losing end of the stick early during the Asian session yesterday as the speculation of an early rate hike from the Fed continued to fade.

The dollar’s losses were made worse when China released a report showing that their exports rose for the first time in 14 months last month. Optimism on global recovery surged on the report, giving traders more reason to let go of the low-yielding dollar in favor of higher-yielding currencies.

No important economic data from the US released yesterday but do expect to see the country’s trade balance at 1:30 pm GMT later today.

The trade balance measures the total difference in value between imported and exported goods and services in a given period. A positive balance, which is called a surplus, indicates that the total dollar value of the exports is more than the total dollar value of imports. A negative balance, on the other hand, means the opposite. The forecast for November is a deficit of $34.9 billion, up the $32.9 billion deficit the month before.

[PipDiddy]

Despite the dollar's relative strength versus higher yielding currencies, the dollar dropped tremendously versus the yen. Could this be a signal of risk aversion creeping back into the markets?

The dollar gained when the Bank of China upped its reserve requirement. The central bank did this in hopes of slowing down growth and curbing inflation. Could this be a sign of more easing policies coming out of the Far East? My buddy Forex Gump recently wrote about this in his blog. Check it out!

Trade balance figures released yesterday indicated that the trade deficit increased from $34.9 billion to $36.4 billion in November. The data revealed however, that import demand is slowly picking up as orders for consumer and capital goods picked up. At the same time however, exports fell as demand for US consumer goods fell. Let's see if this continues when December's figures are released.

Meanwhile, let me remind you that it's earnings season right now! Seeing as how companies haven't been spitting out good earnings reports so far and coupling this with how the yen made a nice rally yesterday, could this be a case of risk aversion? Maybe, just maybe...

Nothing major on deck today except the Beige book report at 7:00 pm GMT. Many expect the report to indicate more optimism from Fed officials, while at the same time stressing that it is still too early to raise interest rates. Hmmm.. not like we haven't hear that before – ha!

Tomorrow could be pretty exciting, as retail sales data will be released at 1:30 pm GMT. Retail and core retail sales growth are expected to have cooled down a bit, posting growth of just 0.4% and 0.3% respectively, after increasing by 1.3% the previous month.

[PipDiddy]

Unable to recover its recent losses, the greenback fell against most major currencies yesterday as it failed to draw support from US economic reports. Although the Fed's Beige Book was a bit upbeat, traders are still wary whether this optimism would carry on after today's retail sales report.

According to the Beige Book, economic activity in the US is gradually picking up pace with ten out of twelve Fed districts posting improvements. Furthermore, December sales were reportedly higher from a year ago even though the labor market remains weak. Although current economic conditions are still a far cry from their pre-recession state, Fed officials seemed to agree that the risks of a double-dip recession are fading.

Meanwhile, the Federal budget balance came in slightly worse than expected. The deficit stood at $91.9 billion in December, down from $120.3 billion in the previous month. However, the December deficit, which was higher than the projected $88.9 billion, was nearly twice as much as the deficit from a year ago. This also marks the government's 15th straight month in incurring a budget deficit.

Moving on... The US retail sales report is set for release at 1:30 pm GMT today. The report could show that retail sales rose by 0.4% in December, following a 1.3% jump in November. Core retail sales are hoping to see a 0.3% uptick after November's 1.2% increase. Word on the street is that we could be in for a huge upside surprise, thanks to holiday shopping. If we do see better than expected results, the greenback could win back its losses from last week's dismal employment report.

Also due today are this week's unemployment claims. A total of 438K in first-time jobless claims are expected, slightly higher than the previous week's 434K in claims. It seems the US labor market isn't out of the rut just yet...

[ronron]

Hey PipDiddy
Great job with your analysis. keep up the good work

[PipDiddy]

Oh no, not another disappointing economic report! After suffering a major letdown from the NFP report last week, the USD hit by another upsetting economic figure, the retail sales reading for December. Apparently, US consumers didn't splurge during the holidays.

US retail sales shrank by 0.3% in December, against the consensus of a 0.4% increase. Leading the decline was the massive drop in automobile sales, which sank by 0.8%, during the month. Many also speculated that the bad weather during the last month of 2009 depressed spending, causing core retail sales to slide by 0.2%. Another possible explanation is the recently reported rise in unemployment, seen in the latest NFP figure.

On a less downbeat note, the retail sales reading for November saw an upward revision, from 1.3% to 1.8%. November core retail sales were likewise revised from 1.2% to 1.9%.

The USD was unable to make any headway as the release of the weekly jobless claims figure reawakened concerns about the state of the US labor market. Initial jobless claims came in worse than expected, posting 444K in claims for the week. All in all, these weak reports set the stage for what could be a more cautious and slightly dovish FOMC statement later this month.

Would today's economic reports from the US allow the USD to recover? The US economic schedule is filled to the brim with reports such as the Empire State manufacturing index, CPI, industrial production, and University of Michigan consumer sentiment reading.

Inflation is expected to stay moderated for the month of December, with the CPI projected to rise by 0.2% and the core CPI estimated to climb by 0.1%. Just like my buddy Forex Gump mentioned in his US inflation article, the recent economic slack could be the reason why price levels don't rise so much.

The industrial production report due 2:15 pm GMT could print a 0.7% uptick in December, on top of the 0.8% growth seen in November. Capacity utilization is also slated to rise from 71.3% to 71.9% during the same month.

Meanwhile, the Empire State manufacturing index is expected to show an immense improvement in the manufacturing industry, especially if the actual figure meets the consensus of an 11.2 reading for January. Later on, the release of the University of Michigan consumer sentiment reading at 2:55 pm GMT could show that consumer sentiment improved from 72.5 to 73.8 in January.

[PipDiddy]

Risk aversion, brought on by weaker-than-expected data, was able to keep the dollar well-bid last Friday. It seems that currency traders prefer the dollar as the fundamentals of major economies aren’t looking too pretty at this point in time.

The consumer price index for December showed that prices increased by 0.1% only, and not 0.2% like initially expected. The core version of the report, which excludes food and energy prices, was right in line with expectations though, revealing a 0.1% increase.

Meanwhile, the industrial production report for December printed a 0.6% uptick in December, slightly lower than the 0.7% growth consensus. November’s reading, which was at 0.8%, was revised down to 0.6%.

Lastly, the preliminary University of Michigan consumer sentiment survey, even though lower-than-expected, revealed that confidence inched up to 72.8 in January from 72.5 the month before.

US banks are closed today for the Martin Luther King holiday but looking ahead the week, we’ve got a couple of economic data of interest.

First up is November's Treasury International Capital (TIC) flows at 2:00 pm GMT tomorrow. The Treasury International Capital flows report shows the movement of money into and out of the country for stocks and bonds. A positive TIC balance (called a surplus) means that more securities were sold than bought by the nation. Traders generally view a rising TIC balance as bullish for the domestic currency because large government holdings of a nation’s currency show confidence in that currency. The forecast is a surplus of $30.3 billion, up from the $20.7 billion surplus seen the month before.

On Wednesday, at 1:30 pm GMT, producer price index (PPI) and building permits report are due. The PPI is expected to show a rise of 0.1% in the prices of the merchandise and services sold by producers in December. Meanwhile, the annualized number of building permits issued for the same period was probably 590,000.

On Thursday, we will see the usual unemployment claims (1:30 pm GMT) and the Philadelphia manufacturing index (3:00 pm GMT). The expectation is unemployment claims for the week ending Jan. 16 eased to 441,000 from 444,000 the week before. The Philadelphia manufacturing index, on the other hand, is predicted to print a reading of 18.2 for January, slightly lower from the 20.4 reading in December.

[PipDiddy]

Pretty quiet day in the markets as the US markets were off on holiday. Most pairs stayed within range although the dollar did fall slightly across the board. Could this be a sign of more USD- selling to come?

With the US holiday (God bless you, Mr. MLK!), it pretty much a day of ranging yesterday. We could be in line for some strong moves today as US traders come back to play. Tonight, the TIC Long Term Purchases report will be released at 2:00 pm GMT. The report measures the net amount of US long term securities that were purchased by foreigners during the reported month. Traders take note of this data because it is indicative of demand for USD because in order to purchase US securities, one would first need to have US dollars.

Word on the street is that the net amount increased to $30.3 billion during December. This doesn’t really surprise me – remember that the USD had a nice rally in December, so this may be part of the reason why it did so. If this report comes in much better than forecasted, it may just remind people why they were buying the USD last December...

Tomorrow will be busy once again, as housing data (building permits and housing starts) and inflation data (producer price index) will be available at 1:30 pm GMT. Be careful trading around this time as these reports sometimes cause a ruckus in the markets as traders pay close attention to developments in these two economic indicators.

[PipDiddy]

Dollar domination! Greenback strength, which was seen all over the markets yesterday, was most likely a result of these factors: the Senate elections in Massachusetts, increased purchases of US long-term securities, and good old risk aversion.

Speculations that the Democrats could lose their 60th seat in Senate brought forth USD-buying yesterday. This is because a Republican win could delay the passing of the health care bill and other reform programs which are estimated to cost more than $1 trillion. We all know how the Obama administration has been put in the hot seat for its massive stimulus spending which resulted to a ballooning government deficit. The possibility of government spending being curtailed renewed hopes that the deteriorating fiscal situation would soon improve.

On the economic front, purchases of US long-term securities reportedly rose from $19.3 billion to $126.8 billion in November, outpacing the consensus of an increase to $30.3 billion. This is the indicator's highest net growth since May 2007. The surge in net capital inflows reflects strong investor confidence in US securities, boosting the USD even higher.

Meanwhile, risk aversion is still a dominant theme in the markets as Greece's credit issues threaten the stability of the entire euro zone. Investors remain hesitant to buy up higher-yielding currencies, such as the EUR.

Moving on, the US is set to release its building permits data at 1:30 pm GMT today. The report could show that building permits rose another 0.59 million in December. If the actual figure disappoints, we might see the USD return some of its gains from yesterday. Also due today is data on US housing starts, which could post a 0.58 million increase for November.

The US will also be releasing its PPI data today. Producer prices are expected to post a mere 0.1% uptick in December after rising by 1.8% in the previous month. Core PPI is estimated to climb also by 0.1%. We'll know whether inflation would remain in check upon the release of the actual PPI figures at 1:30 pm GMT.

[PipDiddy]

The dollar is back! At least for one day, the dollar was invincible as it kicked all the other major currencies aside. It looks like things are starting to turn pretty well for the dollar bulls. Let’s see if the greenback can sustain its strong rally yesterday.

Economic data was mixed yesterday with the US’s PPI coming in at 0.2%, better than the 0.1% consensus. The core version of the account, however, fell short of the 0.1% estimate by staying flat at 0.0% during the period. US’s housing data also published some mixed results with building permits printing 650,000 in December, beating the 590,000 projection. US housing starts for the same period, though, came in slightly below the 580,000 estimate with only 560,000.

The dollar started to move higher when news came out that China ordered its banks to limit their lending. Optimism in the markets was tempered with this report, leading investors back to the safety of the greenback.

Today (1:30 pm GMT), initial jobless claims for the week ending January 16 will be released. Claims are expected to have cooled off a bit to 441,000. The count for the previous week stood at 444,000. The Philadelphia Fed manufacturing index, which is projected to fall to 18.1 from 22.5, will also be reported later during the day.

So for today, the dollar could just take a breather a trade in a range bound fashion given the expected mixed data from the US.