Daily Economic Commentary: United States

Trading Discussion News and Economy
41

Wham Bam Thank You Uncle Ben! We saw the dollar fall on Friday, as the markets reacted optimistically to comments made by US Fed Chairman Ben Bernanke. The USD dropped off across the board (except against the JPY), as investors and traders looked for higher yielding currencies.

At the Jackson Hole Symposium in Wyoming, Bernanke delivered his most optimistic assessment of the economy in over a year. Bernanke said that economic activity was picking up both in the US and abroad, and growth in the near future is likely. Bernanke did express some caution, citing that unemployment, poor retail sales and illiquid credit markets still pose threats to recovery. He said that the recovery will probably be slow at first.

Still, the markets took his comments positively, as risk appetite was boosted and we saw a run towards higher yielding currencies.

Interestingly, Bernanke said that the global economy is beginning to emerge from recession due to the aggressive actions taken by governments across the world. Remember however, the Fed has decided to delay the end of it�s $300 billion Treasury purchase program � indicating that the Fed still remains cautious over the whole situation. So, is the economy really recovery because it�s doing better… or only because of all the economic stimulus that was injected into the economy? Keep note, that the Euro zone, whose quantitative easing program is only a fraction of that of the US�, is improving, as shown by the growth of Germany and France in the 2nd quarter. This shows that the recent recovery is due to the internal strength of those two economies, as not much stimulus was needed. Will the US be able to show the same strength once its economic stimulus plans come to an end?

In other news, existing home sales data was also available on Friday. Sales rose by 7.2%, bringing the annualized rate to 5.24 million homes. This brought the rate to its highest level in 2 years. Is this a sign that housing market has already bottomed out and wont continue to put a drag on the economy?

Tomorrow, at 2:00 pm GMT, the Conference Board will be releasing the latest results of its Consumer Confidence Index. The index is expected to rise to 48.1, after it had failed expectations last July by coming in at 46.6. Also, we have the latest Housing Price Index m/m and Richmond Manufacturing Index are scheduled for release at the same time. The former is expected to show a slight increase of 0.4% in housing prices from May to June, while the latter is expected to have a reading of 14, the same as its last release (0 is the score that separates improving and worsening conditions).

We may see some volatility during the middle of the week, with durable goods, new home sales, and preliminary GDP q/q data all on deck.

42

It was just another manic Monday for the USD despite (or probably because of) the drought in economic data. The Yen and the comdolls and flexed their muscles and showed strength against the greenback while the GBP and CHF bowed down to the USD. The EURUSD, well… it just bounced up and down the charts yesterday…

Things should heat up for today as traders turn their attention to the US CB consumer confidence data. The index, which is due at 2:00 pm GMT, is expected to climb from 46.6 to 48.1 in August. An improvement in consumer confidence suggests that spending, sales, and overall economic activity would pick up pace. If the actual figure meets or beats expectations, then risk tolerance would be kicked into high gear once again. Considering the recent drop in unemployment rate and the equity rallies, consumers could show a little more spunk with their economic outlook this month.

Data on house prices are also due today. S&P’s housing price index is expected to show a 16.3% drop in house prices after recording a 17.1% decline in the previous month. Lastly, the Richmond manufacturing index is due at 2:00 pm GMT. The index could climb from 14 to 17 in August but this report is not expected to have a huge impact on the currency market.

43

It was like the opening of a Christmas season sale yesterday when investors flocked New York�s street. The US capitals markets, particularly the stock market, spiked after a better-than-expected CB consumer confidence results. Investors quickly jumped on the high yielders� train and left the USD down a steep ditch.

The CB consumer confidence index for the month of August jumped to 54.1 from 47.4. It was only seen to reach 48.1. The government�s programs such as the �cash-for-clunkers� and the extension of the jobless grants have benefited consumers this quarter. Consumers, in turn, became more upbeat on their outlook at least for near term. The surprise upside in the account spurred investors to leave the safety of the USD yet again for the promise of better profits from the riskier but more attractive assets.

On a separate note, President Barrack Obama nominated Fed Chairman Bernanke for a second term. Bernanke has helped the US battle its deepest and worst economic slump since the Great Depression. He has expanded the Fed�s power the most in history in an effort to keep the US out of a second depression.

A couple of market moving reports are due today in the US. Core durable goods orders in July are projected to increase again by 1.0% after already expanding by 1.1% in the month prior. The headline figure is also seen to rise by 3.1% after sliding by 2.5% in June. At 2:00 pm GMT, data on new home sales for July will also be released. New home sales for the month are expected to reach 393,000 from last month�s 384,000 reading.

The projected advance in the figures may actually be bearish again for the USD.

44

The markets finally picked up their pace yesterday as the USD made some serious advances other major currencies. Surprisingly, better-than-expected data coming out of the US failed to trigger a USD sell-off across the boards.

For instance, new home sales made a huge leap from 393,000 in June to 433,000 in July. It went up by a whopping 9.6% in just a single month. This was also its strongest reading since September last year. In addition, although the core durable goods report came out only at 0.8% vs 1.0%, the headline number rose by 4.9%, better than the 3.1% increase consensus. The uptick in orders was primarily caused by increased demand for communications gear and airplanes… by bankers who received huge bonuses last month. Hehe, kidding about the bankers part.

The preliminary GDP is due today at 12:30 pm GMT so expect a bit of consolidation with the USD pairs prior the release. It is expected to be revised down to -1.4% from the advanced reading of -1.0%. Still, I�ve got a slight bias on better-than-expected reading as most of the data that came out after the advanced GDP report released a couple of months back were to the upside. I did a nice little post on this topic on my blog two days ago so why don�t you take a look?

The weekly unemployment claims will also be released at the same time as the GDP report. The prediction is that 562,000 claimed jobless insurance for the first time last week, lower than the 576,000 figure the week prior.

That�s it for today! Watch out for some volatility during the US session when the GDP numbers come out!

45

Rough day at the office for the USD, as it limped across the board and fell against all other majors. The tough day was caused by an increase in optimism boosted stocks and oil prices as US GDP data came in better than expected.

The Preliminary GDP q/q report showed no change from the advance report, printing that the US economy fell by just 1.0% during the 2nd quarter. It was expected that there would be a revision to show a 1.5% decline. To some (myself included), this wasn�t much of a surprise, as recent data released after the advanced report had been showing some nice improvements. If things continue to improve, could we see an upward revision in the third and final release next month?

In a separate report, the number of people who filed for unemployment claims was at 570,000. While this was higher than the forecasted 562,000 figure, it was still an improvement from the previous week�s number of 580,000. It seems that companies lay offs are slowing down as government stimulus has helped boost the housing and manufacturing industries. Will this continue in the coming months when such stimulus plans come to an end? Let�s hope this continues so that I can keep giving my paper boy his monthly tip!

For the end of the week, we have some personal spending and income data coming in at 12:30 pm GMT. Remember, consumer spending contributes to 70% of the economy � if the reports prints that consumer spending rose in July, we may see a boost in risk appetite. Also on deck today are revisions to the University of Michigan�s consumer sentiment and inflation expectations reports. These are scheduled for release at 1:55 pm GMT.

That�s all for the week � enjoy the weekend and good luck trading!

46

Are you ready for an action-packed week? Word on the forex street is that breakouts are bound to happen this week. After ending on a mixed note against the majors last week, the USD could establish a clearer direction this time around. Bullish or bearish? Well, that depends on the bunch of economic data ahead!

The USD warms up this Monday with only the Chicago PMI on schedule. The indicator, which is expected to leap from 43.4 to 47.4, is due 1:45 pm GMT. The index has been steadily climbing since May as it attempts to land above the 50.0 mark, which indicates industry expansion.

Things heat up on Tuesday with ISM manufacturing PMI and pending home sales on tap. Analysts expect the manufacturing PMI to make it above 50 after it landed at 48.9 last month. Meanwhile, pending home sales are projected to increase by 1.7%. in July.

The action peaks on Wednesday, which is filled to the brim with economic reports. ADP non-farm employment change, a primer for the upcoming NFP report, is expected to record only 250K in job losses. This should be a notable improvement from the previous 371K in job losses. Other labor market indicators, such as non-farm productivity and unit labor costs, are on the docket. Factory orders, which are predicted to be up by 1.5%, are due 2:00 pm GMT. Later on, minutes from the latest FOMC meeting will be released.

Thursday should be a bit of a cool down since only the weekly unemployment claims and the ISM non-manufacturing PMI are on the menu. Initial jobless claims are expected to be slightly less than last week’s 570K while ISM non-manufacturing PMI should step up from 46.4 to 48.3.

The USD would probably end this action-filled week with a bang. The NFP report, which usually causes quite a ruckus in the currency markets, is due 12:30 pm GMT on Friday. The consensus is that a total of 223K in job losses will be recorded for the month of August. Unemployment rate, which is due along with the NFP report, could climb from 9.4% to 9.5%.

47

The USD ended the day mixed due to a broad selling in the global capitals markets after a sharp decline in Chinese equities. The greenback gained some ground as investors moved away from the riskier assets. It, however, sold off following an impressive Chicago PMI result.

The US capitals markets were in the red territory during the whole session yesterday due the sell-off in China’s Shanghai Composite Index. The Shanghai Composite slipped by 6.7% which sparked some concerns in the global capitals markets. The USD benefited due to the resurgence of risk aversion.

Meanwhile, the Chicago PMI, which is a measure of business activity, surpassed expectations and reached a score of 50.0 from 43.4. It was only seen to rise to 47.4. A reading above 50.0 indicates expansion. The jump in the numbers may have been caused by the increase in demand from abroad and the reduction of inventories.

The USD lost most of its gains following the release.

Today (2:00 pm GMT), the ISM manufacturing PMI and pending home sales for the month of August will be reported. The ISM manufacturing PMI is seen to increase to 50.6 from 48.9 while the pending home sales are expected to gain by 1.7% after already advancing by 3.6% in the previous period. A positive upside in the ISM manufacturing PMI is likely given yesterday�s surprise increase in the Chicago PMI. Though, such increases in the accounts could be bearish for the USD.

48

Spurred by increased risk aversion, the USD managed to rally furiously against most major currencies yesterday. The usual expectation that better-than-expected data coming out of the US would cause a USD sell-off failed to materialize.

In just one day, the Dow Jones Index dropped 1.94% while the S&P 500 Index fell 2.21%, pushing investors to seek the safety of the USD.

The ISM manufacturing PMI for August, which tries to determine whether the manufacturing industry is expanding or contracting, printed a strong 52.9 reading. The forecast stood at 50.6 and July�s figure was only at 48.9. Meanwhile, pending home sales grew 3.2%, higher than the 1.7% increase consensus. The annualized number of total vehicle sold also hit 14 million in August from 11.2 million the month prior.

Today would prove to be another exciting day as the US will be dropping a huge truckload of economic data!

To start off, there�s the challenger job cuts at 11:30 am GMT. It measures change in the number jobs employers are going to cut.

A similar report and more significant report, the ADP non-farm employment change, is due a few minutes after at 12:15 pm GMT. The report tends move markets because investors see it as a leading indicator of the Bureau of Labor Statistic�s non-farm payroll report that will be released on Friday. Economists predict that 250,000 jobs were lost in August, lower than the 371,000 jobs lost the month prior.

At 2:00 pm GMT, the monthly report on factory orders will be released. The total value of new orders put with manufacturers is predicted to have risen by 2.3% in July.

With the number of economic data due for release today, it would be best to be on your toes. We all know how sentiment how fast sentiment could shift!

49

The dollar fell in yesterday�s roller skate, tripping on pebbles of mixed economic data. The dollar couldn�t sustain its run from the past two days, falling against most other majors, as trading was choppy throughout the European and US sessions.

The ADP non-farm employment change reportcame out worse than expected, printing job losses at 298,000. The figure was expected to be at 250,000. Still, this was a major improvement from July�s printing of 371,000 job losses. Upon the release of the report, we saw some choppy trading although it seemed that the USD was headed for another day of gains.

Over the next couple of hours however, the dollar lost steam as some good data helped boost risk appetite. Factory orders rose by 1.3% from June to July. This was less than the expected 2.3% increase, but still bigger than the upwardly revised 0.9% rise in June. This represented the 5th increase in the past 6 months. The increase was mostly driven by a jump in big ticket items � items that are expected to last 3 years or longer. Normally, such orders are once-in-awhile expenses. Also, take note that there have been massive inventory cuts in the past year. Could the recent increase in orders be because of replenishing inventory, rather than actual demand? Will this lead to a fall in orders in coming months?

The minutes of the last FOMC meeting that followed later in the day revealed that Fed officials are more confident that the recession is coming to a close. Still, they couldn�t say how strong the recovery would be. Once again, Fed officials expressing an optimistic but cautious stance…

Today on the US front, we have the weekly unemployment claims (12:30 pm GMT) � expected to show last week�s claims to be at 563,000 � and the ISM Non-manufacturing PMIreport (2:00 pm GMT), which is predicted to print a reading of 48.3, an increase from August�s reading of 46.4.

We could be in line for more choppy trading today, as more hard hitting news is on deck across the globe. Be careful and good luck trading!

50

It’s that time of the month again! Yes, you know what I’m talking about… The non-farm payrolls report is due today! My my, it’s bound to be a pretty crazy Friday, I can tell…

The USD saw some mixed trading yesterday, as most majors went for the rally-then-reverse routine. Initial jobless claims for the week recorded 570K in unemployment claims, worse than the forecast at 563K but modestly better than last week’s 574K reading. Meanwhile, ISM non-manufacturing PMI recorded an improvement from 46.4 to 48.4.

For today’s NFP report, a total of 223K in job losses are expected for the month of August. This would be an improvement over July’s 247K increase in unemployment… if the actual figure meets or beats the consensus. Just a few days ago, the ADP non-farm employment change report, which is considered a sneak preview of the NFP report, printed 298K in job losses. Although it was significantly better than July’s 360K in job losses, it was worse than the consensus of a 250K increase in unemployment. Whatever the actual NFP figure prints, the market is in for some volatility around the time of release at 12:30 pm GMT.

Also due today is the US unemployment rate and average hourly earnings report. The unemployment rate is expected to climb from 9.4% to 9.5% for August. This indicator just came from a surprise drop from 9.5% to 9.4% in July, causing some to think that the labor market woes are over. However, underlying figures show that the dip was a fluke since it was caused by discouraged workers dropping out of the workforce and not improved hiring. We’ll see if the same phenomenon took place in August…

It looks like the USD plans to end the week with a big bang! Watch out for fireworks and stay on your toes. Good luck trading!

51

What a bad way to end the week for the USD last Friday. The other majors advanced against the greenback after the NFP report showed that payrolls for the month of August declined at a slower pace than initially predicted. Will the USD continue to slide further?

Payrolls dropped only by 216,000 in August against expectations for a 223,000 lay-offs. The figure may still look huge but it is already a big improvement from the previous month�s 276,000 job losses. Despite the better-than-expected employment change, US�s unemployment rate still surged to 9.7% from 9.4%. While the labor market remains to be weak, the economic growth forecast for this quarter would set the bar for improved worker productivity and, thus, corporate profits.

The market discounted the still weak labor conditions. Risk appetite in the capitals markets surfaced once again. The USD sold off as a result.

Not much will happen today in the US due to a bank holiday.

The US�s unemployment claims for the week ending September 5 and its July trade balance will be released on September 10. The unemployment claims is seen to taper off a little bit to 555,000 from 570,000 while its trade balance is expected to improve marginally to -$26.8 billion from -$27.0 billion.

US�s federal balance and preliminary UoM consumer sentiment are due on September 11. Both accounts are seen to post improvements.

The expected gains in the upcoming economic reports may be bullish for the capitals markets but bearish for the USD.

52

Totally slow day for the markets yesterday as the US celebrated a bank holiday. This kept the USD trading in a tight range versus most major currencies.

Looking ahead, we�ve got a pretty light week in the US in terms of economic data as only the trade balance, weekly unemployment claims and University of Michigan consumer sentiment are due. But of course, we can�t let that fool us into thinking that volatility in the market would be muted as well! The thing is, a lot interest rate decision announcements from other countries are due. These events are usually a big deal for the market so we could see some hefty moves come mid-week.

For now, let�s look forward to the report on consumer credit later tonight at 7 pm GMT. The forecast is that the total change in value of credit consumers built up requiring installment payments dropped by another 3.8 billion dollars in August. Although the economy is picking up, it seems that consumers still are cautious in taking out credit and doing any major spending. In any case, traders don�t usually pay attention to this report so event risk is minimal. Even if this is the case, we could see some drastic moves as money starts flowing back into the capital markets after the long weekend.

53

Dollar weakness was in play yesterday, as we saw a major dollar sell off starting in the Euro session. In fact, we saw 4 majors � the EUR, CHF, AUD and NZD � all hit yearly highs against the USD!

The fall of the USD was attributed to a combination of factors. Firstly, there were grumblings from the UN calling for a new global currency to replace the USD. Secondly, we saw risk appetite improve as good economic data was released from Australia, Germany and the UK. Thirdly, a rise in equities and commodities also did not bode well for the dollar. Fourthly, there were some concerns regarding US deficit levels. Given all of this, I�m not surprised that we saw the dollar take a beating yesterday.

Late yesterday, the report on consumer credit was released. The report showed that consumer credit fell much more than expected in July, falling by $21.6 billion, 5 times the expectation of $3.8 billion decline! This marked the 6th consecutive month that credit has fallen. This indicates that the credit markets are still ice cold - which would not bode well for consumer spending. Seeing as that the government’s “Cash-for-Clunkers” program was just released recently, lets see if consumer credit picks up in the following months.

Today, FOMC member Charles Evans will be speaking at the “Great Inflation Debate” at New York at 12:00 pm GMT. Given that he will be talking about inflation, watch out for any comments about interest rates and what the Fed thinks about the threat of hyperinflation if they keep rates as low as they have been.

Also being released today is the Beige Book report. This report could also provide some insight as to what the FOMC is planning.

Tomorrow, we’ve got a heavy economic platter ahead of us, with trade balance and unemployment claims data to be released. Also, FOMC members Dennis Lockhart and Donald Kohn as well as US Treasury Secretary Tim Geithner will all be speaking at different events. Watch out for Geithner’s speech - there have been times where a lot of volatility followed him talking.

54

Struggling to get back on its feet, the greenback put up a good fight against commodity currencies but was knocked down by the EUR, GBP, and JPY yesterday. What caused the slight pullback in the USD selloff was the release of the Fed’s Beige Book which highlighted consumer weakness in the US economy.

Consumer spending has yet to show signs of improvement as retail sales refused to budge even after the government’s massive stimulus programs. This raises concerns that spending would continue to worsen in the coming months if the government does not come up with more stimulus plans. Labor conditions were also pinpointed as weak but it was noted that there was an uptick in temporary hiring and a decline in the pace of layoffs. On a more optimistic note, manufacturing and housing were said to have already bottomed out. Overall, the US economy’s “recovery” is more sluggish than expected. Several concerns, such as tight credit conditions and feeble loan demand, continue to weigh down the economy, causing investors to remain cautious with their outlook.

Looking forward to the day ahead, we’ve got trade balance and weekly jobless claims on the table. Will the US trade deficit widen from 27.0 billion USD to 27.1 billion USD? With a reported growth in both imports and exports, would the trade balance post an upside surprise? And would initial jobless claims stay below 600K? Given that this indicator has missed expectations for the past four weeks, would it come in higher than the 560K consensus for this week? And more importantly, how would the USD react? Answers on 12:30 pm GMT!

55

Investors� mood was turned up yesterday despite the worse-than-expected US trade balance result and the negative revision in the previous week�s initial jobless claims. The USD felt a broad-based weakness as a result to close the day.

The US capitals markets tip-toed over the red territory during the start of the US session as the US trade deficit unexpectedly swelled to -$32.0 billion from -$27.5 billion. It was initially seen to improve to -$27.1 billion. Imports outpaced exports during the period as the demand for cars, computers and oil rose. Production in the auto industry was boosted with the government�s �cash for clunkers� program which resulted in the increase of imported auto parts and equipments.

Another reason contributing to the market�s sluggish start was the negative revision in the previous week�s initial jobless claims figures. The number was changed to 576,000 from 570,000. Though, market participants became somewhat glad afterward when they heard that the latest result came in better-than-expected. According to the report, initial jobless claims fell 26,000 to 550,000 against a 560,000 initial estimate. Initial claims have been fairly improving over the months though we cannot say that the economy is already healthy given the still mounting job losses.

Investors� vibe turned amber later following US Treasury Secretary Geithner�s testimony before the Congress that policymakers can advance their strategy with the goal of building a solid support for the country�s future growth. He also stated that the bailed out financial institutions will most likely not need any further financial support and that the Congress can remove that allocation from their budget.

Today (12:30 pm GMT), import prices and preliminary UoM consumer sentiment are on tap in the US. Import prices are seen to gain by 1.0% in August after falling by 0.7% in July. Consumer sentiment is likewise projected to improve to 67.2 from 65.7. Improvements in the accounts can be bullish for the capitals markets but bearish for the USD.

On a separate report later, the US Federal budget deficit is seen to shrink to -$155.5 billion from -$180.7 billion. Any improvement in the figure can ease some of the negative pressures on the USD.

However, the markets may turn red today to commemorate the 8th anniversary of the 9/11 attacks.

56

keep em coming :slight_smile:

57

Pretty quiet day last Friday as the USD�s price action was subdued against most major currencies! Dollar bears taking a break? Maybe! This week could prove to be very exciting for the world�s favorite currency as a bunch of important economic reports are due.

First up, expect to see the report on August retail sales at 12:30 pm GMT tomorrow. Since two-thirds of economic activity is primarily from consumer spending, the report tends to create quite a hefty impact on the market. The forecast is a 1.8% increase in the headline figure while only a 0.4% rise in the core report. Also released at the same time at 8:30 are the US produce price index (PPI) for August and the Empire State manufacturing index for September.

On Wednesday, the core consumer price index, a report used to measure the rate of inflation in the US. The forecast is that inflation remained flat August-on-July at 0.1%.

Lastly, the reports on building permits and jobless claims will be released on Thursday, 12:30 pm GMT. Economists expect that permits rose to an annualized rate of 0.58 million from 0.56 million the month prior. Meanwhile, the jobless claims report would probably show that 554,000 people claimed unemployment insurance the first time last week.

Will the �sell-the-dollar� sentiment persist this week? I guess we all just have to find out together!

58

USD pairs traded up and down yesterday, with the USD’s only noticeable gain being against the pound. It seems that there are still concerns of trade protectionism that surfaced at the end of last week.

US � China relations are testy at the moment, as the US government slapped tariffs on China-made tires. China, on the other hand, retaliated by questioning the prices of US chicken and automobile products that were entering the Chinese market. It seems that trade protectionism is at hand here and if this continues, I think it could spark some runs of risk aversion. I�d be on the lookout for more news coming out from the US-China front, especially regarding trade.

Yesterday, President Barack Obama delivered a speech on the 1-year anniversary of the Lehman Brothers bankruptcy. In his speech, Obama warned against complacency by bankers, and said that there was a need for �common sense� banking regulations. He said that such measures were needed in order to avoid another financial meltdown in the future. Take note, that this was a key topic in the most recent G20 meeting and that the G20 will be meeting in Pittsburgh later this month (September 24 -25). I suspect that this will once again be the central issue discussed and maybe we shall see more elaborate plans emerge after the next meeting.

Also yesterday, FOMC members Jeffrey Lacker and Janet Yellen delivered speeches at separate events. Lacker said that the Fed should consider adding more stimulus up to the maximum authorized amount, while Yellen said that the government should do more to boost employment and fight disinflation? Could these be subtle hints that the Fed is looking into injecting more stimulus into the economy?

Today, we could see more volatility in the US trading session, as a couple of high impact reports will be released. Retail sales m/m, PPI m/m and the Empire Manufacturing Index are all scheduled for release at 12:30 pm GMT. Retail sales and producer prices are both expected to have increased during the month of August while the index is also expected to have an improved reading.

Also, at 2:00 pm GMT, Fed Chairman Ben Bernanke will be delivering a speech entitled �Reflections on a Year of Crisis�. Being the head of the Fed, Bernanke�s speeches do have a deep impact on the markets. Watch out for any wild spikes in volatility following his speech.

For tomorrow�s economic platter, we have CPI, industrial production, the Current Account and the TIC Long-Term Purchases report all on deck. Looks like a busy day on the US economic front for the next couple of days!

59

Clobbered by risk sentiment, the USD lost ground against most majors (except for the GBP) yesterday. Optimistic comments from Fed Chairman Ben Bernanke, coupled with exceptionally strong US economic data, caused another round of risk-taking in the markets.

According to Bernanke, the US economy has a good chance of making it out of the recession this third quarter. Looking at the recent set of economic data, well, we could say he’s probably right. The Empire State manufacturing index jumped from 12.1 to 18.9 in September. This is the indicator’s fastest pace of growth in two years, indicating that the pickup in manufacturing activity could be a huge factor in pulling the economy out of a recession.

Meanwhile, PPI rose by a surprising 1.7% in August. The consensus was a mere 0.9% uptick in producer prices after the PPI slid down by 0.9% in July. The rise in producer prices was boosted mostly by an increase in energy prices. Taking the volatile items (energy and food) out of the equation, producer prices are left with a 0.2% increase.

Lastly, an impressive 2.7% rise in retail sales was posted for the month of August. The August retail sales figure, which beat the forecast of a 1.9% uptick, was a large improvement over July’s 0.2% downturn in retail sales. Analysts are starting to infer that, based on this improvement in retail sales, the third quarter GDP could finally land in positive territory. Unless consumer spending posts a massive slump in September, Bernanke could actually be right in saying that the recession would be over next quarter…

For today, we have another set of high-impact reports from the US. First off, we have CPI and core CPI at 12:30 pm GMT. Price levels are expecting to see a 0.3% increase in August while core CPI is projected to rise by 0.1%. Also at 12:30 pm GMT, we have current account data. The US current account deficit is expected to narrow from 101 billion USD to 92 billion USD.

Later on, TIC long-term purchases data is due 1:00 pm GMT. Recall that the USD experienced reserve diversification fears when the UN called for reducing the role of the USD in global trade. The TIC report should confirm whether central banks have actually been dumping the USD. The consensus is at 65.3 billion USD, which is lower than the previous figure of 90.7 billion USD. If the actual figure comes in way lower than the consensus, this suggests that central banks have greatly reduced their USD holdings and currency traders could follow suit.

Industrial production and capacity utilization figures are due 1:15 pm GMT. Both are expected to post improvements, with industrial production rising by 0.7% and capacity utilization climbing from 68.5% to 69.1%. If the actual figures come in better than expected, we might see another run of risk-taking all over the markets. But then again, the USD could take cue from fundamentals and stage a strong rally. So, which is it? Risk sentiment or fundamentals? We’ll find out soon enough!

60

It�s back to the good ol� days yesterday as the greenback exhibited weakness against most of the other majors. Investors turned their back the most from the greenback in 18 months as the recovery of the global economy reduces the demand for the USD as a safe haven.

The US Dollar Index marked its lowest level yesterday as investors took advantage of the country�s super low interest rates to finance their asset purchases abroad which yield by as much as 8.1%. Moreover, the speculation that the US economy is already on its �growth� phase did not help the USD�s cause. Investors continued to embrace more risks by buying up equities and commodities while leaving the buck on the sidelines.

Yesterday�s buying in the capitals markets was further supported by some decent economic updates. US�s headline CPI for the month of August came in at 0.4%, which is a tick higher than the 0.3% consensus. The core figure, on the other hand, just remained the same at 0.1%. Industrial production in August likewise exceeded expectations as it rose by 0.8% versus the 0.6% initial estimate. The capacity utilization rate for the same period also came in better-than-expected at 69.6%. It was only seen to rise to 69.1% from 69.0%. The only account to fall red was the country�s current account deficit. The figure only shrank to -$99 billion as against the -$92 billion projection. In any case, the figure is still an improvement from the previous deficit of $105 billion.

Today will be busy once again in Wall Street with the release of some market moving economic news. Building permits and housing starts in August will be due at 12:30 pm GMT. The annualized count of the new residential building permits given are anticipated to rise to 580 million from 560 million while the ones that started construction during the previous month are anticipated to grow to 60 million from 580 million.

The Philadelphia Fed Manufacturing Index, which is an indicator of the country�s manufacturing industry, is seen to jump to 8.1 from 4.2. A reading above 0 indicates that conditions in the sector are improving. In addition, an almost two-times increase from the previous score hints a significant increase in business activity which, of course, reflects well on the country at least in the near term.

The unemployment claims for the week ending September 12 will also be issued at 12:30 pm GMT. In spite of the other positive developments in the other sectors, the US� labor market is still seen to show some dimness. The latest tally of unemployment claims are anticipated to worsen to 554,000 from 550,000.

The USD may continue to fall further, though, its downward move would probably be muted given the mixed expectations in the upcoming economic reports.