The Greenback and Japanese Yen gained on Friday as US consumer confidence fell in August to 63.2 from a previous reading of 66.0 in July, which is the lowest reading since March. The Yen outperformed the US Dollar and rose against all major currencies as risk aversion increased. Despite recent data from the Euro Zone which surprised the markets with positive GDP from Germany and France, it seems other factors still concerning the investors that probably we have not come to an end for the worst recession since World War II.
The Fed meeting results last Wednesday came along with expectations, with interest rates unchanged at 0-0.25% and reiterated that rates will stay at its current for an extended period of time. The positive side from the Fed meeting was the outlook on economy which was little optimistic. The British pound was pressured after BoE announced that it is extending its asset purchase program by �50 B to �175 B as inflation is expected to remain below the BoE�s target at 2%. The Aussie was lifted to a new 2009 high at 0.8478 after a speech from RBA Governor Stevens� indicating that the bank could raise interest by the beginning of 2010, but quickly fell as commodity prices went down.
The equity and commodity markets are probably giving a sign that prices have topped up at least for the near term, and we have seen a divergence in global stock markets and emerging stock markets as MSCI world index made a new high last week and MSCI Emerging market index kept below 864.7 prior high.
U.S. stocks fell for the first time in five weeks as the unexpected drop in consumer confidence raised concern the steepest rally since the 1930s isn�t justified by economic prospects. The Standard & Poor�s 500 Index fell 0.6 percent to 1,004.09. The Dow Jones Industrial Average dropped 48.67 points, or 0.5 percent, to 9,321.4. The Nasdaq retreated 0.7 percent to 1,985.52. From China the sharp fall in Shanghai Composite Index could be a major reason in sending commodity prices down.
The US Dollar continued its fall backed by rising equity markets as Chinese equities started its rebound after the 4% decline on Wednesday. AIG said that it plans to repay the money borrowed from the US government which also helped push the equity markets higher. Leading indicators posted a reading of a rise of 0.6% backed by improvements in job sector and positive equity markets while the Philadelphia Fed manufacturing activity showed a positive reading at 4.2 against an expectation of -2.0 and better than the previous reading of -7.5 as new orders received increased. This data shows that the manufacturing sector has gained the most majorly boosted by the auto sector where the cash-for-clunkers program has helped the most.
Also released was the Initial Jobless claims reading which showed that the new claims rose 15,000 unexpectedly to 576,000 while the total claims till date rose 2,000 to 6.241 million. The mortgage delinquencies rose 9.24% up from 9.12%, the highest in till date.
The Pound fell yesterday being the weakest among the majors after the UK government posted a deficit of 8 Billion pounds, the highest till date to lows of 1.6451 after positive retail sales boosted the Pound to 1.6606 as the retail sales rose by 0.4% while the annual rate rose to a 14 month high of 3.3%.
Upcoming releases for today, we have the PMI Manufacturing and Services data from the Germany and the Euro Zone while the US will release the Existing Home Sales data at 1400 GMT. The Home sales data could be a factor in determining the breakout levels for the major pairs as continued weakness in the housing market is dominant as unemployment rate still holds the key to economic growth.
Positive economic data out of the Euro zone and United States managed to lift investors� desire for riskier assets, pushing equity markets higher. The EurUsd rose 73pips, finding support at 1.432, while the UsdJpy fell 32pips to 94.50. The GbpUsd appreciated 50pips, bringing the cable to the upper-range of 1.65. Equity markets rose in the U.S. and Europe, with the Dow higher by 1.45% or 136pts and the FTSE up by 1.43% or 66pts. The yield curve experienced some flattening, with the 10 and 30 year bonds up 12 and 9bps respectively. Commodities were higher across the board with oil up by $.44bbl at $73.39bbl and gold up $13.4oz approaching the mid-range of $954oz.
Today�s price action took most of its direction from uplifting economic data out of the Euro zone as PMI surveys noticeably beat expectations. The PMI Services flash was at 49.5 versus estimates of 46.5 and the composite PMI index reached a key level of 50 versus estimates of 48.3. Both readings were at 15 month high�s and the composite reading indicates a move away from a contraction in Euro zone private sector activity. Investor optimism took higher risk currencies like the euro and sterling up over 100pips against the dollar reaching high�s of 1.4375 and 1.6622.
Adding further impetus to the risk rally, Federal Reserve Chairman Ben Bernanke remarked that the global economy had bottomed out and is now beginning to emerge and recover from the economic crisis. At the same time, the release of US existing home sales confirmed a 7.2% increase in July to 5.24mln units versus estimates of a rise to 5.0mln, taking the dollar and yen 0.6% and 0.8% lower against the euro. Commodity currencies like the Kiwi moved higher after Prime Minister John Key said he felt New Zealand would be able to emerge from the recession by the end of 2009 and that because of limited inflation pressure, there is currently no need to raise interest rates. In addition, NYMEX crude futures for October delivery rose by a moderate $1.23bbl above $74bbl, supporting a 62pip rise of the Canadian dollar to C$1.080.