The USD continued to extend its losses from the end of 2007 as it fell against most of its major counterparts as new data showed a decline in the manufacturing sector, which further discouraged economic growth prospects for the US.
The Institute for Supply Management released new data showing the manufacturing sector to be sluggish as it fell to its lowest level in almost five years. The fall in manufacturing came from a plunge in New Orders, which was confirmed by a report from the Commerce Department on Dec. 27th, along with rising inflationary pressures as the ISM reported a minor gain in Prices Paid. As the manufacturing data shows the US economy to be continually battling with the housing and credit crisis, many are rallying around the speculation that the Fed will once again cut rates in their January 30th meeting to give a helping hand to the faltering economy. As a result of all the uncertainty that is taking hold of the US, many investors are looking away from the US for greater opportunities, and leave the country with a pessimistic outlook for 2008.
Volatile trading continued in today’s session as mounting violence and rising commodity prices left investors weary at the beginning of the New Year. The securities markets started out on the right foot as the FOMC Minutes for the December meeting lifted hopes of another rate cut, but soon changed gears as the DJIA saw 29 of its 30 components lost ground as the index fell by 260 points, with the S&P500 losing 24 points. The divergence in today’s session occurred as crude oil prices sky rocketed to gain more that $4 a barrel as rising violence in Nigeria raised concerns that Africa’s biggest oil producer may cut production. Gold futures also enjoyed a huge gain today as it climbed to its highest level since 1980, causing the USD to continue its mounting losses.
US treasuries continued to gain as the securities markets came under pressure, sending investors to the switch their asset holdings. Risk adverse investors readily switched over to risk-free fixed income instruments as treasury prices continued to climb with yields plummeting. We expect bonds to remain upbeat and to continue its advances as uncertainty of the economy continues to wear down investor sentiment, along with increasing political uncertainty pressing down on investors to lower their risk preference.