Weak New Homes Sales Pushes the US Dollar Lower
By dailyFX
The U.S. Dollar continued to lose ground in the currency market as it fell against nearly all of the majors following data New Home sales which fell to its lowest in more that 12 years. The USD/CHF saw the biggest loss as the pair dropped from to 1.1292 from 1.1391 which represents a 2.2 percent drop on the day. The Euro gained ground against the US dollar for the sixth consecutive trading day while the GBP/USD currency pair hit a high of $2.00, but retraced back to trade within the $1.99 range. The only currency that did not appreciate against the US dollar was the New Zealand dollar which climbed into the 0.77 trading range.
The release of the New Home Sales data by the Commerce Department had a crushing effect as sales unexpectedly fell by 9 percent hitting a 12 year low, indicating that the worse of the credit and housing crisis is yet to be over. The release shed light on the continuing weakness of the housing market as inventory of new homes continue to accumulate with prices on a steady decline, causing growth prospects to be lowered for 2008. New Home Sales have decline by 25.4 percent for the year, and is expected to be the biggest decline since 1963. Amid the disappointing New Home Sales figures, the Chicago Purchasing Managers Index told a different story as it rose above expectation, showing significant accumulation of strength within the manufacturing sector. As a result, we anticipate the housing market to continually deteriorate until it hits rock bottom, and do not expect to see any signs of improvement for the housing industry until then.
The stock markets showed minor gains through a volatile trading session amid negative housing data, with 14 out of the 30 DJIA components declining, led by General Motors Corp losing 3 percent, followed by Citigroup which saw prices decline by 1.2 percent. The S&P500 followed the DJIA by welcoming a 1.35 point advance, bouncing back from the plunge in yesterday’s session which was ignited by the assassination of Pakistan Prime Minister Benazir Bhutto. The stock markets were resilient in today’s session as they struggled with the disappointing fact that the housing market has yet to bottom out, and were able of fight off a second day of decline.
US Treasuries enjoyed a second day of gains as new housing data sent yields plummeting and prices soaring. The past two days of negative data has sent risk adverse investors to seek shelter behind risk free assets as political unrest along with sluggish growth prospects deferred investors from jumping into riskier investments. The confusion and potential danger of the current economic and political situation has caused many to speculate that the Federal Reserve will lean towards another rate cut in January, further helping to increase the demand for US Treasuries. Due to the current economic situation along with the volatile securities market, many investors are moving their funds into the safe haven of US Treasuries, and we expect the trend to linger into the beginning of the 2008.
Tuesday, December 25, 2007
Key Themes for 2008 - What do Economists Expect for the New Year?
2008 promises to be another interesting year. With significant variance in the range of forecasts on offer and fast changing perceptions of risk, financial markets could be in for a prolonged period of volatility. Key themes for 2008 include, have central banks averted a massive rise in corporate defaults or will further cash injections be required as losses continue to be disclosed? Will the US housing market recover? Will the UK housing market collapse? Is the UK retail sector in for a tough period? Are we in for another bout of strong M&A activity? Will commodity markets and emerging market equities come off the boil? Are markets too complacent about inflation risk, so will bond yields rise in the major economies? Answers to these questions will become clearer through economic data releases and policy action/ statements as the year unfolds. - Trevor Williams, Chief Economist at Lloyds TSB Financial Markets
Weekly Bank Research Center 12-24-07
Bold Action: Central Banks Likely to Succeed
Bold Action: Central Banks Likely to Succeed
Coordinated central bank actions to ease liquidity strains in money markets in our view will ultimately have significant positive implications for financial markets and the economy. Yet financial markets have yawned at the moves. If we’re right, despite near-term risks, opportunities are emerging in US equity and credit markets. Liquidity pressures emerged here and in Europe from two sources. One is the overhang of uncertainty about the value of collateral and the economic outlook. A second is the reintermediation of the banking system, which still has further to go. Banks and securities firms have become risk averse, hoarding cash and demanding a premium to lend in the interbank market. At the beginning of this week, that premium was running about 100 bp.
Full Story
Euroland - On a knife-edge
Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank
Both the German ifo index and the FLASH PMIs for Euroland fell a little in December after some signs of a renewed rise in November. It is still the clash between relatively strong economic figures and the long shadow of the credit crisis that is affecting business confidence. While actual economic numbers have been fine, albeit with a few exceptions, the credit crisis intensified in November and December, and it is probably this development that has pulled confidence a little further down. The general picture of business confidence is that growth is around or a little above trend . in other words, a situation where the ECB, under normal circumstances, would be close to tightening monetary policy, especially if the inflation risks were as high as they are at present.
Full Story
Key Themes for 2008
Trevor Williams, Chief Economist at Lloyds TSB Financial Markets
2008 promises to be another interesting year. With significant variance in the range of forecasts on offer and fast changing perceptions of risk, financial markets could be in for a prolonged period of volatility. Key themes for 2008 include, have central banks averted a massive rise in corporate defaults or will further cash injections be required as losses continue to be disclosed? Will the US housing market recover? Will the UK housing market collapse? Is the UK retail sector in for a tough period? Are we in for another bout of strong M&A activity? Will commodity markets and emerging market equities come off the boil? Are markets too complacent about inflation risk, so will bond yields rise in the major economies? Answers to these questions will become clearer through economic data releases and policy action/ statements as the year unfolds.
Full Story
2007 a Year to be Remembered: 2008 Looks Murky
Steve Chan, Economist, TD Bank Financial Group
This time of year is chock-full of prognostications on the year ahead. Last week, we stepped into the fray by providing our updated view on how the increasingly murky economic story will unfold in 2008 (see TD Economics’ Quarterly Economic Forecast at www.td.com/economics). In this edition of the Weekly Bottom Line, we take a look back at a year that was – to say the least – memorable. Just as the 1987 stock market crash, the 1998 Russian debt default and 9/11 have gone down in infamy, 2007 will be remembered as the year that the rain of liquidity (much of which was tied to the U.S. sub-prime boom) turned into a drought. The outbreak of the so-called credit crunch this past summer has prompted investors to look at risk through a new lens with enormous implications for the trajectory of prices of bond, equity, commodities and foreign exchange.
Full Story
Eight Things to Watch in 2008
John E. Silvia, Ph.D. Chief Economist, Wachovia
As this tumultuous year draws to a close we thought it appropriate to outline some key themes we see for the coming year. Much of this draws from our Annual Outlook, which is available on our web site. This year is ending with lots of talk about the possibility of recession. The R word first made its way back into the economic discussion back in late February, when Alan Greenspan addressed a group of investors in Japan and stated that he saw a one in three chance of the U.S. economy falling into recession in 2007. By the end of the year, he had upped his odds to a 50-50 chance of a recession in the next year.
Full Story
Other Pre-screened Independent Contributors
J-Chart
J-Chart is an innovative charting and bias-neutral market analysis tool. Based on its proprietary theoretical concept and display of market price action, J-Chart provides a much clearer and unique insight into the market than conventional charting methods. This innovative charting and market analysis tool is designed to visualize market price action that constructs unique price patterns called "Equilibriums". Based on its "non-fixed time frame" concept and "Kinetic Equilibrium" application, J-Chart users are able to forecast markets' future movements with high accuracy.
J-Chart Weekly Newsletter
2008 promises to be another interesting year. With significant variance in the range of forecasts on offer and fast changing perceptions of risk, financial markets could be in for a prolonged period of volatility. Key themes for 2008 include, have central banks averted a massive rise in corporate defaults or will further cash injections be required as losses continue to be disclosed? Will the US housing market recover? Will the UK housing market collapse? Is the UK retail sector in for a tough period? Are we in for another bout of strong M&A activity? Will commodity markets and emerging market equities come off the boil? Are markets too complacent about inflation risk, so will bond yields rise in the major economies? Answers to these questions will become clearer through economic data releases and policy action/ statements as the year unfolds. - Trevor Williams, Chief Economist at Lloyds TSB Financial Markets
Weekly Bank Research Center 12-24-07
Bold Action: Central Banks Likely to Succeed
Bold Action: Central Banks Likely to Succeed
Coordinated central bank actions to ease liquidity strains in money markets in our view will ultimately have significant positive implications for financial markets and the economy. Yet financial markets have yawned at the moves. If we’re right, despite near-term risks, opportunities are emerging in US equity and credit markets. Liquidity pressures emerged here and in Europe from two sources. One is the overhang of uncertainty about the value of collateral and the economic outlook. A second is the reintermediation of the banking system, which still has further to go. Banks and securities firms have become risk averse, hoarding cash and demanding a premium to lend in the interbank market. At the beginning of this week, that premium was running about 100 bp.
Full Story
Euroland - On a knife-edge
Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank
Both the German ifo index and the FLASH PMIs for Euroland fell a little in December after some signs of a renewed rise in November. It is still the clash between relatively strong economic figures and the long shadow of the credit crisis that is affecting business confidence. While actual economic numbers have been fine, albeit with a few exceptions, the credit crisis intensified in November and December, and it is probably this development that has pulled confidence a little further down. The general picture of business confidence is that growth is around or a little above trend . in other words, a situation where the ECB, under normal circumstances, would be close to tightening monetary policy, especially if the inflation risks were as high as they are at present.
Full Story
Key Themes for 2008
Trevor Williams, Chief Economist at Lloyds TSB Financial Markets
2008 promises to be another interesting year. With significant variance in the range of forecasts on offer and fast changing perceptions of risk, financial markets could be in for a prolonged period of volatility. Key themes for 2008 include, have central banks averted a massive rise in corporate defaults or will further cash injections be required as losses continue to be disclosed? Will the US housing market recover? Will the UK housing market collapse? Is the UK retail sector in for a tough period? Are we in for another bout of strong M&A activity? Will commodity markets and emerging market equities come off the boil? Are markets too complacent about inflation risk, so will bond yields rise in the major economies? Answers to these questions will become clearer through economic data releases and policy action/ statements as the year unfolds.
Full Story
2007 a Year to be Remembered: 2008 Looks Murky
Steve Chan, Economist, TD Bank Financial Group
This time of year is chock-full of prognostications on the year ahead. Last week, we stepped into the fray by providing our updated view on how the increasingly murky economic story will unfold in 2008 (see TD Economics’ Quarterly Economic Forecast at www.td.com/economics). In this edition of the Weekly Bottom Line, we take a look back at a year that was – to say the least – memorable. Just as the 1987 stock market crash, the 1998 Russian debt default and 9/11 have gone down in infamy, 2007 will be remembered as the year that the rain of liquidity (much of which was tied to the U.S. sub-prime boom) turned into a drought. The outbreak of the so-called credit crunch this past summer has prompted investors to look at risk through a new lens with enormous implications for the trajectory of prices of bond, equity, commodities and foreign exchange.
Full Story
Eight Things to Watch in 2008
John E. Silvia, Ph.D. Chief Economist, Wachovia
As this tumultuous year draws to a close we thought it appropriate to outline some key themes we see for the coming year. Much of this draws from our Annual Outlook, which is available on our web site. This year is ending with lots of talk about the possibility of recession. The R word first made its way back into the economic discussion back in late February, when Alan Greenspan addressed a group of investors in Japan and stated that he saw a one in three chance of the U.S. economy falling into recession in 2007. By the end of the year, he had upped his odds to a 50-50 chance of a recession in the next year.
Full Story
Other Pre-screened Independent Contributors
J-Chart
J-Chart is an innovative charting and bias-neutral market analysis tool. Based on its proprietary theoretical concept and display of market price action, J-Chart provides a much clearer and unique insight into the market than conventional charting methods. This innovative charting and market analysis tool is designed to visualize market price action that constructs unique price patterns called "Equilibriums". Based on its "non-fixed time frame" concept and "Kinetic Equilibrium" application, J-Chart users are able to forecast markets' future movements with high accuracy.
J-Chart Weekly Newsletter
How 2007 Changed the Foreign Exchange Market
• ECB President Trichet Voted Financial Time’s Person of the Year
• British Pound Falls to Record Low Against the Euro
How 2007 Changed the Foreign Exchange Market
For the financial markets and the foreign exchange market in particular, 2007 was a year that gave everyone a much needed reality check. Over the past 6 years, the financial markets have become irrationally exuberant. Record low volatilities in the foreign exchange market sparked a vigorous appetite for risk, one that caused money market and state funds, which are suppose to be extremely conservative to be exposed to subprime risk. The hunt for yield and the belief that the good times would continue tempted many managers to look to increase their returns by investing in mortgage backed securities. The availability of cheap and easy money also led many mangers to leverage their bets which escalated their risk. Unfortunately the problems in the subprime sector blew up in 2007 and everyone learned the consequences of taking excess risk, the hard way. The lesson that money managers and investors learned in 2007 is to be more selective with their investments, be less exposed to risky assets and more conservative with leverage. For the foreign exchange market, this will have a direct impact on carry trades. The primary reason why carry trades have thrived over the past few years is because volatility fell to a record low. They have now doubled from their June 2007 levels which means that carry trades will no longer be easy one way bets. The multi-decade highs that we have grown accustomed to will be much more difficult to achieve as everyone becomes more careful with their investments and strive not to repeat the mistakes made in 2007. Also, with the US dollar falling to a record low against the Euro, currencies have become water cooler talk. The general public has become much more aware of how currencies can affect their daily way of life and this is a lesson that will remain with them for the foreseeable future. Countries around the world and the financial markets have become much more intertwined, or in other words globalization has also been taken to another level this past year. Sovereign wealth funds have become a force to be reckoned with. Between the U.A.E, Singapore, Norway, Saudi Arabia, Kuwait and China, there are as much as $2 trillion to spend. Their shopping spree has led to some of the biggest deals this year with the latest being Singapore’s $4.4 billion investment into Merrill Lynch. Saudi Arabia also just announced that they are setting up their fund which is a big reason why we expect this trend to continue. As many of these government funds invest in US financial firms, it will help the US dollar and bring the world much closer together. The FX market is closed on Tuesday and Wednesday. Although there are some housing and manufacturing numbers on Wednesday, there are no major US reports until Thursday.
ECB President Trichet Voted Financial Time’s Person of the Year
The Financial Times voted ECB President Trichet as their Person of the Year and we at DailyFX have always loved Trichet for his candid no nonsense comments on monetary policy. He has never wavered to political pressure and has always tried to prepare the markets months in advance for any potential change to interest rates. As the ripple effects of the US subprime problems caused a major liquidity crisis in the credit markets, the ECB was the first central bank to respond with a massive liquidity injection. According to the FT, for a central bank that is not yet 10 years old, the ultimate compliment was paid when the venerable US Federal Reserve and Bank of England followed suit. Trichet’s reputation was the only one to be enhanced by the latest turmoil. This morning, he continued to remind the markets that the ECB will be focusing on inflation and their desire to contain it will not be distracted by the interest rates cuts from the US and Federal Reserve. When Trichet speaks, we all listen and that says a lot for a central bank who’s credibility has been questioned repeatedly since their inception.
Visit the Euro Currency Room for resources dedicated specifically to the Euro.
British Pound Falls to Record Low Against the Euro
In the fifth consecutive day of weakness, the British pound fell to a record low against the Euro and a 4 month low against the US dollar. With most traders out for the holidays, the trends that began last week have continued well into this week. No one is willing to stick their hand out and start picking a bottom in the British pound this late in the year. Instead many traders are probably happy to end the breakeven and will take this opportunity to collect themselves before start over again in January. As UK economic data continues to show signs of weakness, there are no buyers left in the market. This morning, Hometrack reported 0.3 percent decline in house prices in the month of December, which is the biggest drop in 3 years. They also predict that the number of closings will fall by 17 percent and that prices will rise by just 1 percent next year. The housing market has been the back bone of UK growth for many years and now that this sector of the economy is crumbling, growth could suffer greatly in 2008.
Visit the British Pound Currency Room for resources dedicated specifically to the Euro.
Rally in Stocks Drives the Yen Lower and Australian, New Zealand and Canadian Dollars Higher
Since Friday, the Dow has rallied 300 points and that strength has helped to take the Australian, New Zealand and Canadian dollars higher against both the Japanese Yen and US Dollar. Commodity prices are basically unchanged on the day which indicates that the fluctuations of these currency pairs are largely driven by risk appetite. Of course that too is distorted given the lack of liquidity across the financial markets today. Either way, the Dow and USDJPY are breaking their 100-day SMA which suggests that these gains should continue for the remainder of the week. There are Japanese data scheduled for release Monday and Tuesday night. These reports which include the BSI manufacturing index, the corporate service price index and supermarket sales will not be market moving. Also, the BoJ minutes will simply reinforce what the market knows already, which is that interest rates in Japan will remain low for a very long time.
Visit the Japanese Yen Currency Room for resources dedicated specifically to the Euro.
Tell us what you think on the Canadian dollar Forum.
• ECB President Trichet Voted Financial Time’s Person of the Year
• British Pound Falls to Record Low Against the Euro
How 2007 Changed the Foreign Exchange Market
For the financial markets and the foreign exchange market in particular, 2007 was a year that gave everyone a much needed reality check. Over the past 6 years, the financial markets have become irrationally exuberant. Record low volatilities in the foreign exchange market sparked a vigorous appetite for risk, one that caused money market and state funds, which are suppose to be extremely conservative to be exposed to subprime risk. The hunt for yield and the belief that the good times would continue tempted many managers to look to increase their returns by investing in mortgage backed securities. The availability of cheap and easy money also led many mangers to leverage their bets which escalated their risk. Unfortunately the problems in the subprime sector blew up in 2007 and everyone learned the consequences of taking excess risk, the hard way. The lesson that money managers and investors learned in 2007 is to be more selective with their investments, be less exposed to risky assets and more conservative with leverage. For the foreign exchange market, this will have a direct impact on carry trades. The primary reason why carry trades have thrived over the past few years is because volatility fell to a record low. They have now doubled from their June 2007 levels which means that carry trades will no longer be easy one way bets. The multi-decade highs that we have grown accustomed to will be much more difficult to achieve as everyone becomes more careful with their investments and strive not to repeat the mistakes made in 2007. Also, with the US dollar falling to a record low against the Euro, currencies have become water cooler talk. The general public has become much more aware of how currencies can affect their daily way of life and this is a lesson that will remain with them for the foreseeable future. Countries around the world and the financial markets have become much more intertwined, or in other words globalization has also been taken to another level this past year. Sovereign wealth funds have become a force to be reckoned with. Between the U.A.E, Singapore, Norway, Saudi Arabia, Kuwait and China, there are as much as $2 trillion to spend. Their shopping spree has led to some of the biggest deals this year with the latest being Singapore’s $4.4 billion investment into Merrill Lynch. Saudi Arabia also just announced that they are setting up their fund which is a big reason why we expect this trend to continue. As many of these government funds invest in US financial firms, it will help the US dollar and bring the world much closer together. The FX market is closed on Tuesday and Wednesday. Although there are some housing and manufacturing numbers on Wednesday, there are no major US reports until Thursday.
ECB President Trichet Voted Financial Time’s Person of the Year
The Financial Times voted ECB President Trichet as their Person of the Year and we at DailyFX have always loved Trichet for his candid no nonsense comments on monetary policy. He has never wavered to political pressure and has always tried to prepare the markets months in advance for any potential change to interest rates. As the ripple effects of the US subprime problems caused a major liquidity crisis in the credit markets, the ECB was the first central bank to respond with a massive liquidity injection. According to the FT, for a central bank that is not yet 10 years old, the ultimate compliment was paid when the venerable US Federal Reserve and Bank of England followed suit. Trichet’s reputation was the only one to be enhanced by the latest turmoil. This morning, he continued to remind the markets that the ECB will be focusing on inflation and their desire to contain it will not be distracted by the interest rates cuts from the US and Federal Reserve. When Trichet speaks, we all listen and that says a lot for a central bank who’s credibility has been questioned repeatedly since their inception.
Visit the Euro Currency Room for resources dedicated specifically to the Euro.
British Pound Falls to Record Low Against the Euro
In the fifth consecutive day of weakness, the British pound fell to a record low against the Euro and a 4 month low against the US dollar. With most traders out for the holidays, the trends that began last week have continued well into this week. No one is willing to stick their hand out and start picking a bottom in the British pound this late in the year. Instead many traders are probably happy to end the breakeven and will take this opportunity to collect themselves before start over again in January. As UK economic data continues to show signs of weakness, there are no buyers left in the market. This morning, Hometrack reported 0.3 percent decline in house prices in the month of December, which is the biggest drop in 3 years. They also predict that the number of closings will fall by 17 percent and that prices will rise by just 1 percent next year. The housing market has been the back bone of UK growth for many years and now that this sector of the economy is crumbling, growth could suffer greatly in 2008.
Visit the British Pound Currency Room for resources dedicated specifically to the Euro.
Rally in Stocks Drives the Yen Lower and Australian, New Zealand and Canadian Dollars Higher
Since Friday, the Dow has rallied 300 points and that strength has helped to take the Australian, New Zealand and Canadian dollars higher against both the Japanese Yen and US Dollar. Commodity prices are basically unchanged on the day which indicates that the fluctuations of these currency pairs are largely driven by risk appetite. Of course that too is distorted given the lack of liquidity across the financial markets today. Either way, the Dow and USDJPY are breaking their 100-day SMA which suggests that these gains should continue for the remainder of the week. There are Japanese data scheduled for release Monday and Tuesday night. These reports which include the BSI manufacturing index, the corporate service price index and supermarket sales will not be market moving. Also, the BoJ minutes will simply reinforce what the market knows already, which is that interest rates in Japan will remain low for a very long time.
Visit the Japanese Yen Currency Room for resources dedicated specifically to the Euro.
Tell us what you think on the Canadian dollar Forum.
Subscribe to:
Posts (Atom)
