Fundamental Report for the Week of August 1, 2010

Monday, August 2, 2010

The currency market is, again, led by the global equities markets as European and American stocks rally driving more USD selling and gave a boost to the flagging Euro and the uncertain Pound.  Manufacturing numbers for Britain, Europe and the U.S. seem to be aiding a market looking to invest.

Euro broke the 1.31 mark on positive German and EZ news with the Purchasing Manager Index (PMI) for Manufacturing stayed steady at 61.2 for Germany and actually made a .2 gain for the EuroZone.  While France and Italy don’t really drive the Euro news on their own, they saw slight gains in their own Manufacturing PMI numbers which helped to propel the Euro past recent resistance.

Similarly the Cable climbed on the news from its neighboring economy while posting a better than expected Manufacturing PMI of its own.

The U.S. posted its own surprise in Manufacturing PMI with an unexpected 55.5, well above the 54.2 market prediction and definitely still within the range of expansion (above 50).

These PMI numbers may be indicating inherent strength for these economies and may serve to quell the fears of the marketplace after July’s indicators of overall slowdown.

Tuesday, August 3, 2010

A drop in Construction PMI for Britain (from 58.4 to 54.1) didn’t faze the Pound as 1.5960 and stalled.

The Euro made a similar move above 1.32.  Both currencies seem to be benefiting from an overall “it’s not as bad as we thought it might be by this time” kind of sentiment as the market is abuzz with news that despite the slowdown in growth in China, the U.S. and the EuroZone we may still have avoided a double dip recession.

It helps, too, that the U.S. is posting some lousy numbers and without the market fully behind the USD as the safe haven currency to use in troubled times it is taking its turn being battered around by poor Personal Income and Personal Spending numbers (a decrease by .4% and .2% respectively).  A bright spot for the USD is a slit increase in Factory Orders however it remains to be seen if this will contribute to a turnaround in employment numbers for June.

All major economies have done what they can in terms of interest rates and stimulus it is quite plain that the next leg of recovery is going to have to come from consumer spending and it seems, in the U.S. at least, that the general populace is still nursing old wounds as debt decreases along with spending.   In response to the weak dollar (without a strong Treasury instrument) rumors are circulating that the U.S. may consider a change in fiscal policy.  This could mean that one more round of bad Consumer Price Index (CPI) numbers (used to measure inflation) could be the last strike for policy makers and an interest rate increase may be considered once and for all.

Wednesday, August 04, 2010

Dips in both Services PMI for Germany and the EZ may be indicating some employment problems are yet to be released.  Coupled with the pullback in EZ Retail Sales and the news today hit a 1-2 punch to the marketplace bring the Euro and its sister currency the GBP back down below the highs hit yesterday.

Not entirely an innocent bystander, the Cable did post a declining Services PMI of their own (from 54.4 to 53.1).  It is possible that the PMI numbers released earlier in the week are holding more weight now that they’re paired with today’s numbers.

The market seems a little skittish overall, especially before the U.S. Non Farm Payroll report scheduled for release on Friday.  Positive ADP and ISM Non-Manufacturing numbers negate, somewhat, the negative manufacturing reports released in late July.  This only serves to confuse the market and muddy the waters for a clear expectation for NFP.

The Kiwi is struggling again and posted some bad employment news.  An increasing unemployment rate (from 6 to 6.8%) and a decreasing Employment Change (from 1% to -.3%) brought the NZD/USD below the key resistance level of .73 which ties the hands of the Reserve Bank of New Zealand a bit as they’ve been prompted by many factors to be the next in line to raise interest rates.  The push and pull could keep the Kiwi range bound for August.

Thursday, August 05, 2010

Not much to say about today’s trading except that the market seems to be playing everything very safe and isn’t really tipping its hand in either direction.  Generally speaking, the market will begin to price in its expectations 12-24 hours prior to important news announcements.  The fact that the market has merely triangulated prior to the U.S. NFP release indicates that it is struggling with the mixed bag of news that precedes the actual announcement itself.

On the side of weak NFP numbers one can cite the drop off of census workers and some weak showings in a handful of manufacturing reports.  On the positive side, for the first time in 3 months not all of those reports showed slow down.  There are also good indicators for job growth in the service sector with the reports released yesterday.  This confusion is highly represented by today’s whipsaw action in the majors.

Friday, August 06, 2010

The big news today is NFP.  The 150K census jobs lost carried the weight of the report and subdued any bright spots in the report (like increased jobs in Service and Construction and a stabilized Unemployment Rate) bringing the total jobs lost in July to 131K.  Yikes.  The market responded with a big USD selloff and JPY buyout.

The worst of this news is that the drop in yield on the U.S. 2yr Note to .5% will actually make selling the USD more appealing – if sellers can actually find buyers, that is.

There is hope with such a strong earnings season having the potential to create jobs, but the timeline for that becomes fuzzy as businesses will typically wait for 2-3 good earnings seasons to ramp up hiring.  Whether or not there will even be 2 in a row remains to be seen.

The only currency not to gain on the USD selloff was the Canadian Dollar.  Not only were Canadians hit with their own terrible jobs news, an increase in unemployment to 8% and an additional 9300 jobs lost (when the market expected an increase of 10K), but the economic links to the U.S. has hurt them.  As America’s largest trading partner they’re hard hit when the USD tanks.  They were hard hit today – from both sides.

Next Monday:

• AUD  ANZ Job Ads
• EUR  Germany Trade Balance
• NZD  Credit Card Spending

Next Tuesday:

• USD  Wholesale Inventories
• USD  Rate Decision

Next Wednesday:

• GBP  Unemployment Rate
• NZD  Performance of Mfg Index

Next Thursday:

• EUR  Industrial Production
• USD  Import Price Index
• NZD  Retail Sales

Next Friday:

• EUR  Germany’s GDP
• EUR  EZ Trade Balance
• USD  CPI
• USD  Retail Sales

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