The chock-a-block calendar is confounding some traders and definitely taking the steam out of a few of the US economys top tier indicators. Today, the dollar waded through a few unimpressive spending and inflation reads and was anchored during the big releases when a disappointing ISM report was neutralized by a much better than expected pending home sales number.
Setting the table for tomorrows payrolls number, EURUSD reinforced a core 40-point range just above 1.30, with an ominous intra-day spike above 1.3050. The pounds rebound has ran into trouble as GBPUSD pulls back from its 110-point advance while slipping below the 1.97 figure. Similarly, USDCHF has found a convincing bottom above 1.24 after a short-lived spike to 1.2390. Finally, USDJPY marked a double bottom around 120.10, leading prices to rebound and subsequently settled just below 120.80.
A comparison between the fundamentally-triggered price action yesterday and that of today reveals the delicate balance of timing and expectations. Whereas Wednesdays indicators were spaced out and touting vague expectations, the most important reports today came simultaneously and had concise projections assigned to them. Following the unexpected contraction in Chicago-area factory activity yesterday, the market was well prepared to receive the January ISM survey. Weighted by drops in Philadelphia, New York and Chicago, the national ISM gauge came in at 49.3. Below the 50.0 contractionary/expansionary level for the second time in three months and at its lowest level since April 2003, chronic bears may have found their replacement for the housing market. Though the sector spent 2006 in the worst housing slump in 15 years, recent sales and starts numbers have shown broad improvement. Stopping volatility traders before they could even begin this morning, the simultaneous release of the NARs pending home sales report washed out the bearish sentiment in the ISM. The pending number is considered a leading indicator to the existing sales report since it records activity at the time of signing instead of at the closing. At any rate, the ink was drying on 4.9 percent more contracts in December, the biggest jump since March of 2004.
Though they were overlooked, there were a few other notable indicators offered up for the day. Prior to the ISM/Pending home sales battle, the consumer received a full checkup. Both personal income and spending grew in line with expectations in December, by 0.5 and 0.7 percent respectively. The income data supports the average annual earnings and the spending report validates the retail sales report for the same period; and together, they confirm the consumer sector will be one of the pillars of expansion going into 2007. Elsewhere, the Feds favored inflation report, core PCE, fell short of expectations on both its time frames. With 0.1 percent growth for the month of December and a 2.2 percent pace for the year, the Feds recent comments suggesting price pressures will moderate is already bearing fruit. Also, todays data helped to stoke speculation for tomorrows NFPs. First time jobless claims last week fell to 307,000 people, while the less volatile four-week average fell to its lowest levels since the opening months of the year. With additional support from the 152,000 print in yesterdays ADP release, expectations for another solid number around above 100,000 are in place.
In equities, the moderate inflation report allowed earnings reports to guide the day with baubles into the green for the benchmark indices. By 16:30 GMT, the S&P 500 was offering the biggest move with a 0.21 percent advance to 1,441.27. Trailing behind, the Dow was up 0.13 percent to 12,638.51 while the NASDAQ Composite slipped only fractionally to 2,463.16. From the headliners, search engine giant Google released its numbers to a fickle crowd. Profits nearly tripled for the fourth quarter while sales soared 67 percent. Nonetheless, its shares sunk $7.53 or 1.7 percent to $493.97. No stranger to breaking records, Exxon Mobil Corp. reported a $39.5 billion profit for 2006, a record for any US business. Shares of the energy firm rose only 0.6 percent to $74.52.
Treasuries opened the morning mixed as the economic sentiment was mixed with a mild inflation outlook. Ten-year notes slipped 2/32nds to 98-16 with yields up a basis point to 4.818 by 16:30 GMT. Thirty-year notes edged 4/32nds lower as its yield added a basis point to 4.917