Indeed, US stock market price action also reflected some consolidation, but with the DJIA and S&P 500 ultimately closing above key support levels at 9300 and 1000, respectively, the outlook for “risky” assets still looks good in the near-term, creating a bearish bias for the US dollar and Japanese yen. Looking to the day’s data, the US Commerce Department said that personal income plunged 1.3 percent in June, the sharpest drop since January 2005, after rising 1.3 percent in May. That said, the decline was due primarily to a 5.9 percent drop off in transfer payments, which includes government benefits like disability and unemployment insurance, while wage and salary growth failed to rise for the ninth straight month. Meanwhile, personal spending rose by 0.4 percent during the month and the savings rate eased back to 4.6 percent from 6.2 percent. However, based on the declines we saw in the Conference Board and University of Michigan measures of consumer confidence during June and July, today’s data doesn’t necessarily suggest that American sentiment has improved significantly, especially since incomes continue to weaken.
In more optimistic news, the National Association of Realtors said that pending home sales rose for the fifth straight month in June at a better-than-expected rate of 3.6 percent, pushing the annual rate of growth up to a nearly 5-year high of 9.2 percent. While this is not always the best indicator for the US housing sector, combined with the June new and existing home sales reports, recent data suggests that the property market is gaining some traction thanks to lower interest rates, discounted prices, and incentives like the $8,000 tax credit for first-time homebuyers, as stipulated in the government’s stimulus package.
Looking ahead to Wednesday, data is expected to show that conditions in US non-manufacturing sector - which accounts for approximately 70 percent of total economic activity in the country and includes retail, services, and finance - improved somewhat in July as the Institute for Supply Management index is estimated to rise to 48.0 from 47.0. However, consumer confidence has faded in recent months, primarily on the economic outlook, as the Conference Board’s measure surprisingly fell to 46.6 in July from 49.3 in June and 54.8 in May. Since risk trends have proven to be the greater driver of price action in the forex markets, a weaker than expected result could trigger flight-to-quality and thus, gains for the US dollar. On the other hand, surprisingly strong numbers could lift FX carry trades and weigh on the greenback.
[B]Read the entire day’s economic developments at Daily Fundamentals[/B].