Daily Economic Commentary: United States

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Daily Economic Round Up of data from the United States!

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The USD started the week by garnering some gains as China reaffirmed the reserve status of the USD. People’s Bank of China Governor Zhou Xiaochuan said that China’s foreign exchange reserve policy is quite stable and that they do not to diversify out of their USD-denominated assets for the time being. Risk appetite began to take effect in the middle of the day, causing the USD to weaken against the EUR, AUD, and NZD.

Major economic reports due today could spark another run of risk tolerance. Chicago PMI, which is due at 9:45am GMT, is projected to rise from 34.9 to 38.9. Consumer confidence is also expecting an uptick, possibly from 54.9 to 55.4. The actual figure is due at 10:00am GMT. Housing price index is expected to post another 18.7% year-on-year decline.

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Consumers are starting to realize that things are not as rosy as they seem. The consumer confidence index slid from 54.8 to 49.3 instead of rising to 55.4 as expected. Concerns about job losses and wage cuts took their toll on the consumers’ outlook for the economy. Prior to this, house prices reported an 18.1% drop, which is less than the forecasted 18.7% decline. Chicago PMI soared from 34.9 to 39.9, higher than the consensus at 38.9. Nonetheless, a wave of risk aversion took over the charts as the USD ended higher against most major currencies.

US jumpstarts the first of July with a bunch of economic reports due, starting with the non-farm employment report. This measures the estimated change in the number of people employed during the previous month and is a market-moving economic report. Price moves can reach as much as 200 pips upon the release of this report so watch out! The consensus is a 388K decrease in employment, which is better than the previous 532K decline. This is due at 8:15am GMT.

Next up at 10:00am GMT is the ISM manufacturing PMI, another market-moving report. This is an index obtained through a survey of manufacturers asked to rate the relative level of business conditions. The index is projected to inch closer to the 50.0 expansion mark. An improvement from 42.8 to 44.5 is expected. Pending home sales are also due at 10:00am GMT. An increase of 0.7% in May is expected to follow April’s 6.7% increase in pending home sales. Would we see another wave of risk aversion if the numbers disappoint?

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The USD traded in a mixed tone across the boards as risk appetite popped its ugly face (or pretty face, depending on what your point of view is) on the foreign exchange market yesterday. It posted large losses versus the CHF, CAD and the EUR but remained pretty much range bound versus the other majors. Still, the bias among investors was to sell the currency.

It looks like China was once again to blame for the USD’s demise. Apparently, Chinese factory data showed that its manufacturing industry has slightly picked up, indicating that the recession’s grip on the world is easing. In addition, China made comments again to talk about a new world reserve currency on the next G8 meeting. China With more than 800 billion USD in US bonds, China seems to be playing both sides of the fence! Economists and investors seem to suggest that the dollar may further extend its losses versus most major currencies, at least in the short-term.

US’s economic bag likewise showed mixed results. For one, the ADP non-farm employment change showed that 473,000 people lost jobs last month, much more than the 338,000 lost jobs initially expected. Despite this, May’s figure was revised up to -485,000 from -532,000. The ISM manufacturing PMI for May, on the other hand, improved to 44.8. The reading was higher than the expected reading of 44.5 and April’s 42.8. Still, the figure is still lower than baseline 50, indicating that the manufacturing industry is still in contraction mode. Lastly, pending home sales for May slightly increased by 0.1%, lower than the 0.7% rise anticipated.

All eyes will be on the US non-farm employment change today! Dubbed as the mother lode of all economic reports, it’s due for release a day earlier because of Independence Day celebrations. Expect to see it at 12:30 pm GMT. Economists are expecting 360,000 lost jobs, signifying that labor conditions remain weak. US unemployment probably hit 9.6% in June, up from 9.4% in May. Because of this, the report on unemployment claims would probably take a back seat for now. In any case, the forecast is that 612,000 individuals claimed insurance for the first time last week.

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Surprise, surprise! The dollar rallied late during the US session on increased risk aversion as the Non-Farm Payroll Employment report’s results were worse than expected.

The report showed that 467,000 jobs were lost in June, much higher than the forecasted figure of 322,000. This came one day after a similar report by the ADP also had worse than expected results. This was discouraging news, as job losses fell to a revised 322,000 in May. Prior to that, monthly releases had shown job losses figures above 500,000. The unemployment rate now stands at 9.5% and is expected to hit 10% by the end of the year.

Other labor data showed that weekly unemployment claims fell to 614,000 last week, which was in line with forecasts, while average hourly wage remained steady from May to June. With labor conditions still looking bleak, this cause risk aversion to rise yesterday as stocks fell and the dollar rallied.

In other news, the US Factory Orders report showed some positive data, as orders rose by 1.2% in May, higher than the expected rise of 0.9%. This came after a downwardly revised 0.5% rise in April, the third time in 4 months that orders rose. It also marked the strongest rise since June 2008. This may be a signal that the contraction in the manufacturing industry may be starting to stabilizing. It will be interesting to see whether orders will continue to pick up, or if companies still have room to cut inventories, which would limit more orders.

Lastly, a day after Chinese officials mentioned that they will bring up the topic of a “new world currency” in the next G8 meeting, China’s Vice Foreign Minister expressed confidence in the dollar by saying that the USD is the main global reserve currency. China Vice Foreign Minister He said that he hasn’t heard any news from other Chinese officials regarding a push for a new reserve currency and said that he hopes the USD remains stable. Another set of fickle comments coming from the Chinese front.

Today is a banking holiday, as the US enters the Fourth of July weekend. Enjoy the long weekend and be careful playing with those fireworks!

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Welcome back! How was your 4th of July? Well, the USD also took an Independence Day holiday from its strong rally last week as the EUR and commodity currencies staged a modest recovery. The week ahead promises to be relatively light - in terms of economic data, that is. Major economic data in store for the US include ISM non-manufacturing PMI due today and trade balance data due on Friday.

A slight improvement is expected from the US non-manufacturing PMI as analysts project an increase from 44.0 in May to 45.9 in June. If the actual figure due at 3:00pm GMT today hits the mark, then we could see a USD sell-off when risk tolerance makes its way back into the market. Otherwise, expect risk aversion to keep fueling the USD rally.

The G8 summit this week could also bring some volatility to the table since talks of diversification continue to threaten the USD. On the other hand, G8 leaders could shift their focus to discussing the current state of the global economy and potential challenges to recovery. European leaders appear to be uninterested in talking down the USD since this would lead to an appreciation of the EUR, thus hurting the region's exports.

Risk aversion could still be the game plan for the week as traders are still wallowing in the aftermath of last week's disappointing NFP report. Also, in light of the recent drop in consumer confidence, PMI data could catch on the pessimistic outlook. This week's light economic data provides very little chances to revive hopes for a recovery in the US economy.

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Risk aversion is back! The dollar got boosted yesterday as risk sentiment shifted towards safety. This boded well for the US dollar, as it gained against all majors... well almost all. The USD fell dramatically against the yen, as investors chose to move their investments to the yen. The USDJPY pair fell by over 200 pips and reached its lowest level since last February! Interesting – could the dollar be relegated to secondary status in terms of “safety”?

Not much high impact reports came out from the US yesterday, with only the Crude Oil Inventories and Consumer Credit m/m reports being released. The first report showed the oil inventory levels rose last week by 767,000 barrels. Reports also showed that oil prices fell to 61.37 USD per barrel, the 6th consecutive day that oil prices fell. This may help the USD gain against the Loonie, as it has been on an upward channel as of late.

The second report (Consumer Credit m/m) indicated that consumer credit fell for the 4th straight month in May, as it has fallen by 1.54% on an annualized rate. With unemployment rising and credit being accessible, will we more people file for unemployment benefits in the short term?

US Fed member Charles Evans said yesterday that the recession should be done by the end of this year, and that he sees no reason for the Fed to expand its asset purchase program. He said that he viewed the Fed to be in a “wait-and-see” mode. This statement downplays speculation that the Fed may expand its quantitative easing measures to help boost the economy further. Of course, if we see that things are not improving or are worsening, speculation may rise again.

Today doesn’t bring any high impact news, except for the unemployment claims report - which comes out at 12:30 pm GMT. It can sometimes cause volatility when it comes out way off expectations. Claims are expected to top 600,000 once again. Also today, FOMC members Elizabeth Duke and Donald Kahn will be speaking at separate events. Look out for potential statements about monetary policy, much like what Charles Evans said yesterday.

Tomorrow, we could see more volatility as the Trade Balance report is due for release at 12:30 pm GMT. The report is expected to show that the US has a trade deficit of $30 billion. Also due tomorrow are the Preliminary University of Michigan reports (Consumer Sentiment and Inflation Expectations) at 1:55 pm GMT. Lastly, Treasury Secretary Tim Geithner will be speaking before the House Committee on Financial Services at 2:00 pm GMT.

Also, the G8 Meetings will come to a conclusion tomorrow. With it being a Friday, we could see strong moves in the markets depending on what is said at the conference.

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Reversal or correction? For the first half of the week, we watched risk aversion exert its dominance in the currency market, causing investors to flock to the safe-haven USD. Yesterday, better-than-expected jobless claims report coaxed investors back to risk tolerance mode.

This week's unemployment claims came in at 565K, which is below the consensus at 608K. Last week's jobless claims were at 617K. Now now, let's not chalk this up as a recovery in the labor market just yet. This data is distorted by seasonal auto plant closings and is offset by a large increase in continuing claims, which jumped to a record high. The surge in continuing jobless claims from 159K to 6,883K seems to be a better gauge of actual labor conditions.

In other US economic news, wholesale inventories slid by 0.8%, which is less than the projected 1% decrease. Although a fall in stockpiles indicates an uptick in sales, the current reading indicates that the pace of inventory reduction and sales is slowing down.

Heads up for the trade balance data due today! The US trade deficit is expected to widen from 29.2 billion to 30.0 billion USD as exports continue to plummet. The actual figure will be released at 1:30pm GMT.

Also, University of Michigan is set to report a marginal improvement in consumer sentiment. The index, which is expected to step up from 70.8 to 70.9, is due at 2:55pm GMT. Note that the actual figure could disappoint, bearing in mind that the Conference Board previously reported a surprise drop in consumer confidence for June.

Lastly, the conclusion of the G8 summit today could provide lingering event risk as sentiment-shifting commentaries from G8 leaders could leak out. Stay on your toes!

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The USD knocked the hell out of the other heavyweight currencies except the JPY in Last Friday’s ‘match’. Market participants regained their confidence in the market last Thursday. The USD weakened as a result as they switch back to higher yielding assets like the AUD and the EUR. Their optimism, however, faltered once again which gave support to the USD.

The US’ trade balance in May was due last Friday. The USD gained ground ahead of the report in anticipation that its trade deficit would balloon to -$30 billion from -$28.8 billion. Trade balance measures the difference US’ exports and imports. A trade deficit (negative trade balance) means that imports exceed exports. Instead of widening, its trade balance surprisingly came in at -$26 billion. The USD’s gain was shortly reversed.

The preliminary result of the University of Michigan consumer sentiment survey was also reported. The index is based on about 500 consumer surveys regarding the relative level of current and future economic conditions. The account came in at 64.6, well below the expected 70.9 reading after registering a score of 70.8 during the month prior. The USD headed north following the report.

Today (6:00 pm GMT), the US Federal budget balance will be announced. Market participants expect the US budget deficit to narrow to -$65.5 billion from a high of -$189.7 billion. A lower deficit could mean that government spending would also lessen. However, such could be seen positively (for the USD) given the US’ surging debts.

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The USD generally lost ground against most major currencies yesterday as money flowed back in the foreign exchange markets. Given the way the USD failed to extend its gains from last Friday, it seems that the currency’s direction is still uncertain. Risk tolerance is shaky at best, and it looks like it’s all a matter of picking which major currency is the strongest... Or, to be more accurate, least weak. With this week’s relatively light economic calendar, we might just see more range bound movement as we get deeper into the summer doldrums!

Today, US’s economic bag is packed. Later afternoon at 12.30 pm, we will see the numbers on US retail sales, both headline and core. The headline report is expected to print a 0.4% increase while the core retail sales, which excludes highly volatile items such as automobiles, is predicted to show a 0.5% rise. Also release at the same time is the US produce price index for June. The PPI basically records the monthly change in price of finished goods and services sold by businesses. The consensus is a 0.9% increase. Finally, at 2 pm, we will see the report on business inventories for May.

Lots of reports due today but nothing ground breaking so the USD would probably trade sideways versus most currencies with a bit of volatility spikes here and there. Still, like I always say... You never know with the markets today so be careful for any risk sentiment shifts or surprise news!