The major currencies
The major currencies were subjected to
choppy and volatile trading in the Wednesday session with the dollar initially plunging to an all-time low against the Swiss franc and a fresh two and a half year low versus the yen. The greenback, however, managed to lick its wounds by the New York afternoon – rebounding from beneath the 106-level versus the yen to 107.90 and recovering above the 1.10-mark against the franc.
The December
consumer price index revealed buoyant inflation conditions, at 0.3% m/m and 4.1% y/y. The excluding food and energy figure was unchanged at 2.4% y/y. Industrial output was flat, versus a 0.3% increase a month earlier. The NAHB housing market index for January was unchanged at 19.
The Fed was more upbeat in its Beige Book, saying “economic activity increased modestly mid-November through December, albeit at a slower pace”. The Fed said holiday retail spending was subdued, with further weakness in auto sales. It saw weakness in residential real estate across the US, while commercial real estate remained mixed.
The dollar regained its footing
The dollar regained its footing by the New York afternoon following earlier selling against the euro, sterling and yen. A sluggish retail sales report for December was the catalyst for the greenback’s drop to multi-year lows versus the yen at 106.62.
The December
retail sales figure unexpectedly dropped by 0.4% versus a 1.2% increase from November, meanwhile the excluding autos report also fell by 0.2% from a 1.8% reading previously. The producer price fell by 0.1%, versus 3.2% a month earlier while the core reading slipped to 0.2% from 0.4%. The data reinforces expectations that the Fed will aggressively cut rates by 50-bp when it meets at the end of the month.
The dollar’s recent rebound against
The dollar’s recent rebound against the euro and sterling was undermined by weak economic data. The reports released earlier today added to burgeoning fears that the US economy is headed toward a recession. A combination of poor housing data and a disappointing Philadelphia Fed survey set the tone for the trading session, with the greenback initially weaker across the board. The reports also fueled expectations for aggressive policy easing from the Fed beyond the largely priced-in 50-bp rate cut anticipated at the end of the month.
Housing starts for December plunged by over 14% to 1.006 million units, its lowest level in 16-years. Consensus estimates were calling for a drop to 1.14 million units versus 1.187 million units from the previous month. December housing permits declined by 8.1% to 1.068 million units, versus a 0.7% drop in November at 1.162 million units. On a positive note, weekly jobless
claims declined to 301k from 322k.
The January Philadelphia Fed survey revealed dismal economic conditions, falling to its lowest level in six-years to -20.9, far greater than expectations for a decline to -1.0 from -1.6 from December. The employment index dipped into negative territory in January to -1.5 from 3.8 in December, its lowest level since September 2003. The new orders component fell to -15.2 in January, a sharp reversal from the 12 reading in December.
The dollar slumped across the board after a report showed the nation¡¯s manufacturing activity slowed to its lowest level since April 2003, raising expectations for more
interest rate cuts from the Federal Reserve this year.
US manufacturing ISM index unexpectedly dropped from 50.8 to 47.7 in December, adding to concern that the broad economy may cool down following subprime meltdown. However, the ISM price index increased from 67.5 to 68, suggesting inflation pressures remain.
Interest rate futures showed traders have fully priced in a quarter-percentage point to 4.00% by the Fed at its January 30 policy meeting.
The greenback extended its losses broadly after a report showed the nation¡¯s housing market deterioration has not ended yet. The dollar posed for the biggest weekly decline versus the euro.
U
S new home sales fell from 728k to 647k in November, the lowest level in 12 years. The weak data added to concern that the slowing housing market and tight credit market may impede the growth of the whole economy. The Fed is widely expected to lower interest rates by another quarter-percentage point to 4.00% at its January 30 policy meeting.
Another US report came out better than expected but did little to lift sentiment over the dollar. Chicago PMI rose from 52.9 to 56.6 in December, above the estimate of 52.5.
The dollar slumped across the board after a report showed the nation¡¯s manufacturing activity slowed to its lowest level since April 2003, raising expectations for more
interest rate cuts from the Federal Reserve this year.
US manufacturing ISM index unexpectedly dropped from 50.8 to 47.7 in December, adding to concern that the broad economy may cool down following subprime meltdown. However, the ISM price index increased from 67.5 to 68, suggesting inflation pressures remain.
Interest rate futures showed traders have fully priced in a quarter-percentage point to 4.00% by the Fed at its January 30 policy meeting.
The greenback extended its losses broadly after a report showed the nation¡¯s housing market deterioration has not ended yet. The dollar posed for the biggest weekly decline versus the euro.
U
S new home sales fell from 728k to 647k in November, the lowest level in 12 years. The weak data added to concern that the slowing housing market and tight credit market may impede the growth of the whole economy. The Fed is widely expected to lower interest rates by another quarter-percentage point to 4.00% at its January 30 policy meeting.
Another US report came out better than expected but did little to lift sentiment over the dollar. Chicago PMI rose from 52.9 to 56.6 in December, above the estimate of 52.5.
Non-farm payrolls
The dollar pared its losses against the euro and yen after a report showed enough jobs were added in private sector, lifting expectations on tomorrow’s non-farm payrolls.
ADP report showed there were 40k jobs added in December, following a revised 179k increase in the previous month. The message this figure delivered to us is two-folded. First, the labor market had peaked and started to
cool down. Secondly, there is no sign of a contraction given enough new jobs created.
The dollar is trading in a narrow range above 1.47 versus the euro, and bounced back to low 109 from the session low at 108.24 versus the yen.
The dollar slumped across the board after a government report showed job growth slowed to the lowest since 2003, raising the likelihood that the Fed may cut interest rates by the end of this month.
Non-farm payrolls fell sharply from 94k to 18k in December, far below the estimate of 70k. Unemployment rate increased from 4.7% to 5.0%, above the estimate of 4.8%. Average earnings dropped from 0.5% to 0.4%. The surprisingly weak job report added to worries that the nation may head to a recession. The dollar tumbled to above 1.48 versus the euro and dipped below 108 against the yen after the
release of the job report.The gain in the sterling versus the dollar was limited as the Bank of England is seen to follow the monetary policy of the Federal Reserve and cut rates further this year.
The greenback was mixed against the majors in Tuesday trading
The greenback was mixed against the majors in Tuesday
trading, rallying against the yen while relinquishing yesterday’s gains versus the sterling. Fears on the stability of financial firms will continue to weigh on the dollar with earlier rumors of Countrywide, the US mortgage lender, seeking bankruptcy protection adding to market jitters.
Economic data released earlier in the session revealed further deterioration in the housing market. US pending home sales fell by 2.6% to 87.6, down from a revised 89.9 reading in October. The key highlight this week will be Thursday’s speech by Fed Chairman Bernanke, in which his comments will be closely scrutinized for clues as to whether another
25-basis point rate cut at the end of the month is forthcoming.
Fed comments today provided a somber view of the economy, with Boston Fed President Rosengren labeling the current housing investment decline to be the longest in 50-years. He highlighted that previous housing declines have led to economic downturns, and anticipates housing prices to fall more rapidly this year if the economy remains soft. Further, Rosengren said that the continued housing investment decline has heightened risk of “significant”
economic downturn.
The dollar stabilized against
The dollar stabilized against the majors on Monday following last week’s US data-induced plunge. The greenback climbed to a 4 ½-month high against the sterling to 1.9655 while edging up to 109.72 versus the yen. Sentiment over the direction of global interest rates will dictate currency movements this week, with both the ECB and BoE announcing the results of their policy deliberations on Thursday and Fed Chairman Bernanke speaking on “
Financial markets, economic outlook and monetary policy”.
The lackluster
US economic reports last week fuelled speculation for a 50-basis point rate cut from the Fed when it meets at the end of the month. However, given the current outlook for inflation it remains to be seen whether the FOMC will move aggressively to stimulate the struggling economy. The coming week will see a barrage of Fed speakers, including Board members Plosser, Rosengren, Poole, Hoenig, Mishkin and Chairman Bernanke. The comments will be closely scrutinized for clues on the scope for additional easing.
Atlanta Fed President Lockhart delivered a somber assessment of the economy, saying the negatives may be gaining momentum and that now is a time of heightened uncertainty. He said that market contacts have expressed serious concern about further market deterioration and spillover. However, he remains troubled by the elevated level of inflation despite expecting inflation to moderate this year. He believes the Fed has been attentive in making appropriate policy responses to the economic situation. Lockhart added that the Fed is balancing concerns about inflation with serious concerns about growth
The greenback edged higher
The greenback edged higher across the board amid a dearth of fresh US economic news. Earlier comments from St Louis Fed President Poole buoyed the dollar after he said it was too soon to determine whether the sharp housing deterioration will drag the economy into recession. Traders will look to Thursday’s comments from Fed Chairman Bernanke for more insight into how aggressively the FOMC will be ease rates over the coming months.
Euro Slumps on German DataThe euro fell to 1.4641 against the dollar on the heels of soft
Eurozone economic data. Reports from Germany revealed deteriorating economic conditions, with industrial production in November posting a 0.9% decline, missing estimates for a 0.5% rise and worsening from the 0.3% drop in October. Germany’s exports fell by 0.5%, reversing the 0.6% increase a month earlier, while imports dropped 3.0% from an increase of 0.2% in October. Retail sales sharply disappointed forecasts, raising fears that conditions in the Eurozone’s largest economy may be quickly fading. The November retail sales report fell short of calls for a 1.1% increase, instead declining by 1.3%, albeit better that the 2.3% decline in the previous month. On an annualized basis, retail sales tumbled by 3.2% versus a 0.6% decline a year earlier.
The dollar tumbled against the euro
The dollar tumbled against the euro, breaching the 1.48-level in the face of sharply divergent comments from each respective central bank’s chief. ECB President Trichet hinted at further tightening on the back of Eurozone economic strength, while Fed Chairman Bernanke offered a somber assessment of the economy and raised expectations for a 50-basis rate cut at the next policy meeting.
Chairman Bernanke said the Fed stands ready to take “substantive action” to support growth and that further easing “may well be necessary” in light of risks to growth. While the December jobs data was disappointing, Bernanke said it would be a mistake to read too much into one report. Nevertheless, he feels the baseline outlook for 2008 has deteriorated and the downside risks are now more pronounced. Further, Bernanke said that inflation
expectations remain reasonably anchored.
Forex Market Summary
U.S. Dollar Trading (USD) in light of no economic data from the US, markets were relatively tame. Fed member Lockhart expressed concern about inflation but more so about slowness in the economy. In U.S. share markets the NASDAQ was down 5 points (-0.21%) whilst the Dow Jones climbed 27 points (+0.21%) reflecting the directionless trading seen in FX markets. Crude oil pulled back by US$2.79 a barrel to US$95.12 after initially rising due to a confrontation between Iranian gun ships and the US navy. Looking ahead, pending home sales are due out tonight
The Euro (EUR) was subdued against the greenback after PPI for the month of November came in on expectations at 0.8% and the unemployment rate posted a 7.2% result as forecasted. The EURUSD traded with a low of 1.4660 and a high of 1.4756 before closing the day at 1.4672 in the New York session. Looking ahead, retail sales are due out today.
The Japanese Yen (JPY) was weaker against the US dollar for the first time in eight trading days on speculation that global growth may withstand a slowing US economy. Overall the USJPY traded with a low of 108.51 and a high of 109.74 before closing the session at 109.60.
The Sterling (GBP) was slightly weaker in the overnight session as Prime Minister Gordon Brown mentioned that the economy faces 'tough decisions' in 2008, igniting fears of further rate cuts. The GBPUSD traded at a low of 1.9654 and a high of 1.9753 before closing the day at 1.9710 in the New York session.
The Australian Dollar (AUD) was also weaker hampered by a pull back in commodity prices and a rebound in the US dollar against most currencies. Building approvals came in at +8.9% from an expected 0.0% estimate. Overall the AUDUSD traded with a low of 0.8699 and a high of 0.8748 before closing the day at 0.8738 in the New York session. Looking ahead, retail sales are due out tomorrow.
Gold (XAU) was weaker as oil continued to fall and the greenback strengthened. XAU fell by USD$3.50 to USD$862.20 an ounce
Bush Still Mum Over Stimulus
Bush Still Mum Over Stimulus, But Political Pressure Building
Monday January 7, 7:06 pm ET
Jed Graham
December's weak jobs report has put the idea of a fiscal stimulus package on the front burner.
But President Bush's Monday speech on the economy suggests that the White House is cooking up its ingredients at a simmer.
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Yet in an election year with a Democratic Congress, the pressure for a plan may soon come to a boil, analysts said.
The president said the economy has absorbed numerous shocks in the past seven years, but always bounces back.
"We've been through this before," Bush told business leaders in Chicago. He noted that even as the jobless rate jumped to 5% last month, the U.S. added jobs for a record 52nd straight month.
Yet he added, "We cannot take economic growth for granted."
Still Listening
The speech was greeted with anticipation after Bush said Thursday that his administration was considering a stimulus plan.
"We are listening to a lot of good ideas from different people," the president said. "We've got our people out there carefully -- not only monitoring this situation -- but listening to ... possible remedies."
But on Monday Bush only spoke of the administration's ongoing programs to respond to the mortgage crisis, along with other existing proposals on housing and health care.
He also renewed his call for making the 2001 and 2003 tax cuts permanent to reduce "uncertainty in an uncertain market."
Treasury Secretary Henry Paulson told the New York Society of Securities Analysts he expects "further indications of slower growth in the weeks and months ahead."
Paulson said crafting economic aid "will require patience."
"Getting the policy right is more important than getting the policy announced quickly," he said.
Bush told Reuters last week that he probably wouldn't decide on whether or not to propose a stimulus plan until the Jan. 28 State of the Union address.
Democratic Plan Likely
Either way, Democrats in Congress are likely to offer a stimulus plan of their own.
"Concerted action by the federal government and President Bush will make the difference between economic slowdown and recession," Sen. Charles Schumer, D-N.Y., said Monday.
Senate Majority Whip Dick Durbin, D-Ill., blasted Bush for proposing nothing but extending tax cuts set to expire after 2010.
"Tax cuts in 2011 aren't going to create good jobs today," Durbin said in a call with reporters.
Durbin said Democrats had no stimulus plan yet. But he touted his own bill that would "allow families facing foreclosure to have their mortgage renegotiated."
While Paulson announced that 45,000 out of 1.8 million subprime homeowners had sought help under a Treasury-led effort, Durbin said 90% of foreclosed families are being left behind.
An eventual Democratic stimulus plan could look like that proposed by Clinton administration Treasury Secretary Lawrence Summers in a Financial Times op-ed.
He suggests temporary cuts in payroll taxes and increases in food stamp benefits and jobless benefits for the long-term unemployed.
Durbin also called for lifting limits on mortgage finance firms Freddie Mac and Fannie Mae to help the housing market.
While the Bush administration has steered the country through recession and other challenges, it has favored long-term tax relief over short-term measures to help the economy through a soft patch.
"It's not their style," said Don Luskin, chief investment officer of investment consultant Trend Macrolytics. "They're looking for opportunities to make lasting, important structural change."
But Bush co-opted Democrats in 2001 by adopting a $300 tax rebate.
Luskin expects Bush would probably sign a Democratic-type stimulus package -- "provided that it does not have any tax increases."
Greg Valliere, chief political strategist at Stanford Washington Research Group, says Bush is "coming under pressure from Republicans to do something."
Whatever the administration proposes, he says, "the Democrats will say it's not enough and they will up the ante."
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(CNN) -- A narrowed field of White House hopefuls is fighting for the support of New Hampshire's voters on the last day of campaigning before the state holds its first-in-the-nation primary.
Sen. John McCain has forged ahead of the GOP pack in New Hampshire.
The Democratic candidates, jumping on the campaign trail's latest buzzword, are trying to show New Hampshire voters that they can be the agent of change.
Sen. Barack Obama of Illinois, who has opened up a double-digit lead over rival Sen. Hillary Clinton, told supporters the theme of his campaign has not changed.
"We talked about change when we were up; we talked about change where we were down," he said at a rally in Claremont, New Hampshire, on Monday. "This change thing must be catching on."
Obama, who won last week's Iowa caucuses, led Clinton 39 percent to 29 percent in a CNN/WMUR poll conducted Saturday and Sunday, a sharp difference from a poll out Saturday that showed the Democratic front-runners tied at 33 percent.
The CNN/WMUR poll, conducted by the University of New Hampshire, surveyed 341 Democrats and 268 Republicans likely to vote in Tuesday's New Hampshire primary. It had a sampling error of 5 percentage points.
Live in New Hampshire
Anderson Cooper follows the candidates as they do some last-minute stumping. Follow CNN's complete coverage through Tuesday night.
Tonight, 10 p.m. ET
Clinton holds a comfortable advantage in the area of experience, but 61 percent of likely Democratic voters in New Hampshire say what matters most is the ability to bring about change, according to the survey. 
Watch what's at stake in New Hampshire »
In the aftermath of a third-place finish in Iowa, Clinton's camp is sending thousands of e-mails to supporters saying her campaign is about action. Clinton has been focusing on her record while trying to downplay Obama's experience.
"I think it's time for people to say, 'Wait a minute. Let's get real here.' There is a big difference between talking and acting," Clinton told CNN on Sunday.
Former North Carolina Sen. John Edwards, a distant third, has been trying to differentiate himself from the front-runners by pushing his plan for the middle class. He says while Obama promises change, he would be more effective at taking on special interests in Washington. Watch Edwards talk about his plans to create jobs »
"You can't just nice these people to death and bring them to the table. You have to actually be willing to battle them and fight them," he said Sunday in New Hampshire. "That is the difference between us."
Gov. Bill Richardson, polling fourth in the Granite State, is setting his sights on the undecided voters.
"With Bill Richardson, you get change and you get experience. You have to have experience to change things. I have a record," he said Monday on CNN's "American Morning." Watch Richardson explain why he represents change »
On the Republican side, Iowa winner Mike Huckabee says he's not expecting a first-place finish in New Hampshire. Watch Huckabee describe his hopes for New Hampshire »
"If we come in anywhere in the third or fourth spot, we are going to be doing great," he said on CNN Monday.
Sen. John McCain, who finished in a tie for fourth in Iowa, leads the GOP pack in New Hampshire, according to the latest poll. McCain has more than doubled his numbers from where he was six months ago.
"There is a lot of nostalgia associated with this morning. We've had a great time. It's been a wonderful experience again," he said at a campaign stop in Nashua on Monday. McCain won New Hampshire in the 2000 primary.
McCain leads former Massachusetts Gov. Mitt Romney 32 percent to 26 percent, the survey found. Huckabee, whose upset win in Iowa came after being outspent by millions of dollars by Romney, passed former New York Mayor Rudy Giuliani to gain third place.
Giuliani has largely skipped on New Hampshire and is pinning his hopes on Florida and the Super Tuesday states.
At a debate this weekend, McCain and Huckabee were largely on the attack against Romney, who won the Wyoming caucuses Saturday.
During a spirited discussion on foreign policy, Romney told Huckabee, "Don't try and characterize my positions."
Romney also sparred with McCain on the issue of immigration, calling his plan to provide a legal path to citizenship for some undocumented immigrants a form of amnesty. Romney has been airing television ads critical of McCain's position in New Hampshire.
Among other Republicans, anti-war Texas congressman and onetime Libertarian Party presidential nominee Ron Paul was in fifth place at 10 percent in the poll, with Rep. Duncan Hunter of California and former Sen. Fred Thompson of Tennessee both at 1 percent.
New Hampshire's independent voters, who make up about 40 percent of the state's electorate, could throw a surprise in tomorrow's primary.
A growing number of independents say they will vote for Paul, who was excluded from Sunday night's Republican forum on Fox, says his campaign has done a "tremendous job." Watch Paul respond to recent attacks »
"How far we go in the campaign, we don't know," Paul told CNN's Wolf Blitzer on Sunday. "The American people, and there's this large segment sending money to our campaign, that are determined that this revolutionary spirit will continue
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As of 1 hour, 23 minutes ago Stocks Fluctuate on Iran Worries- APWall Street fluctuated Monday after the Bush administration warned Iran following an incident involving that country's forces and three U.S. Navy ships in the Strait of Hormuz.
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