For the second day in a row, surprisingly strong US data did little to spur risk appetite as investor optimism has been exhausted. That said, the US dollar did show a positive reaction to the news, suggesting that fundamentals may start to play a greater role in price action for the currency. Indeed, US durable goods orders surged 4.9 percent in July, the biggest rise in two years, as the ultra-volatile non-defense aircraft component jumped by 107.2 percent as Boeing orders doubled in July to 44 from 20. However, durable goods orders excluding transportation only rose 0.8 percent, and non-defense capital goods orders excluding aircraft - a gauge of business investment - actually fell for the first time since April, suggesting that this surprisingly strong number is a misleading sign of growth.
Adding to the mix, US new home sales rose for the fourth straight month in July, this time by 9.6 percent, the sharpest increase since February 2005, to a ten-month high of 433,000. A further breakdown shows that supply levels fell to 7.5 months from 8.5 months as median prices fell slightly from the previous month to $210,100, though values are still down 11.5 percent from a year ago. In coming months, there is potential for sales to remain supported by lower prices and the US government’s first-time home buyer tax credit of up to $8,000. However, the program expires on December 1, and with unemployment rates likely to rise further, a significant downdraft could hit the sector once again.
The second round of US Q2 GDP estimates is due to hit the wires, but the results will only be market-moving if we see revisions. The preliminary reading is forecasted to be revised down to -1.4 percent from -1.0 percent, though this would still represent a sharp improvement from Q1, when GDP plunged 6.4 percent. Readings in line with expectations may not have a very big impact on price action, but better-than-anticipated results could lead carry trades higher, especially in light of speculation that the recession may have ended in Q2. On the flip side, surprisingly weak numbers could crush these hopes and trigger the return of risk aversion.