durable goods Posts on Forex Blog
The Calm Before the USD Storm?
Jun 24, 2008
Bring back Fed Speak.
The Fed will have to craft tomorrow's statement very carefully. Perhaps some good ole' Greenspan ambiguity would be best.
A spat of negative news today confirmed the US economy is facing difficult times. The Case-Shiller index showed a whopping 15.3% annual decline in home prices. The OFHEO report, which tracks mortgages backed by Freddie Mac and Fannie Mae, showed an annual drop of 4.6%. The Richmond Fed Survey dropped to a low of 4.5 And consumer confidence fell far more than expected, to a reading of 50.4 (vs expected 56.5).
Yet the dollar didn't fall of the face of the earth.
Instead, it remained within a fairly narrow range against the Euro, Pound, and Yen. Evidently, traders feel the Fed is turning hawkish.
Aside from a month of hawkish commentary, what fundamentals can rationalize a strong statement out of the Fed?
1. Uptick in Q1 GDP
I can't stress this one enough. Q1 GDP is expected to be revised up to 1.2% later this week. From an initial reading of 0.6% (later revised 0.9%), that is fantastic.
2. The ARM Conversion Wave
Years ago, the Economist put out a great article discussing the housing bubble pre-burst. In it, they included a graph detailing the ARM conversion wave. The wave had a considerable upswing in Spring 2007 (start of credit crisis), another bump Spring 2008, and a final massive bump in 2010. That suggests that housing will see at least a temporary reprieve for the next 18 months.
3. FDI Outflows are Dropping, Inflows are Picking Up
The OECD today reported that foreign outflows have dropped sharply among member nations. Outflows are now expected to come in at $1.14 trillion, down 37% from the $1.82 trillion in 2007. Indeed, lower than the $1.21 trillion in 2006.
And last week, the TIC showed a sharp increase of inflows of $115 billion vs expected $63.3 billion.
4. Durable Goods Orders
The last 2 reports have beat expectations. The latest report will come out almost 2 hours before the Fed statement. Another surprise (especially excluding autos) is a sure sign of US resiliency.
5. Politicians are Dragging Us Down
It is not a great stretch to suggest political speeches are helping to drag down consumer sentiment.
The Fed is charged with remaining out of politics. As such, they should be expected to ignore the constant down talking of the US economy that is coming out of the politicos.
6. The Greenspan Tarnishment
Former Fed Chairman has taken a lot of heat for leaving rates too low for too long. Bernanke must be conscious of this perception. He must show this Fed will not repeat the mistakes of the past.
Expect the Fed to leave rates unchanged with commentary highly suggestive of rate hikes in the near future.
GDP, housing, Bernanke, durable goods, Fed, FOMC, USD
Forex Events June 22 - June 25
Jun 22, 2008
This week will be dominated by US data. The key mover may be comments from the Fed rate decision at 2:15pm est Wednesday.
Events Monday and Friday are clearly Euro positive, Greenback negative. Watch for the Euro to test the 1.5800 resistance on Monday. If it finally breaks the range, we could see an end to the sideways trading of the last few months as the ECB is definitely going to hike rates July 3rd.
New Zealand and Japan, 2 key parts of the carry trade, report significant data late Wednesday evening. Surprises on either side could be an omen for future carry trade volatility.
All times eastern standard time
Monday June 23
4am German IFO - Current and Expectations
4am Euro-zone PMI Services (expect 50.4)
4am Euro-zone PMI Manufacturing (expect 50.2)
Tuesday June 24
4am Swiss UBS Consumption Indicator
9am Case Shiller Home Price Index (expect 168.8)
10am US Consumer Confidence (expect 56.7, a 16 year low)
7:50pm Japan Trade balance (exclude services)
Wednesday June 25
8:30am US Durable Good Orders (expect -0.9% excluding transport)
10am US New Home sales (expect 530k, a flat reading)
2:15pm Fed Rate Decision (expect hold at 2%)
6:45pm New Zealand Current Account (expect -7.5%)
Thursday June 26
7:30am US fed Vice Chairman Speaks at ECB
8:30am US Q1 GDP finalized (expect 1.2% from initial 0.6%, thats big folks. Note, upgraded from 0.6% to 0.9% previously)
10am US Existing Home Sales
6:45pm New Zealand Q1 GDP (expect 2.1%)
6:45pm New Zealand May Trade Balance (expect +150million)
7:30pm Japan CPI
7:50pm Japan Retail Trade (Domestic)
Friday June 27
2:50am France GDP (expect 2.2%)
4am Euro-zone Current Account
4:30am Great Britain Q1 GDP (expect 2.5%)
10:00am US university of Michigan Consumer Confidence (expect 56.8)
European Central Bank, CPI, Carry Trade, trade balance, housing, upcoming reports, consumer confidence, durable goods, Fed, IFO
US Durable Goods Beat Expectations, Oil Demand Falling
May 28, 2008
In major news, the US Durable Goods (items lasting more than 3 years) fell 0.5% in April. Analysts had expected a 1.0 - 1.5% drop. The business spending proxy (which excludes defense and aircraft) orders jumped 4.2% - making it the largest rise since December. Shipments (exports) rose 1.2%. And most impressively, electrical orders surged a record 27.8%! This is definitely not a recessionary reading.
Quick Note: Chuck has long thought this US down turn would ultimately end with another tech boom - as the effects of high bandwidth 15 Mbps at home, (OMG I would have thought it impossible when I was on 28.8kbps in 1995), HD (VHS to DVD was a big part of the late 90s boom), and other technology improvements to the web will likely result in a 2nd "dot-com" era. Check out http://www.searchme.com to see what Cash means. That electrical orders were up sharply (partly on orders for High-Def products) is a sign that Chuck may be right.
..back on topic. The US Dept of Transportation reported that Americans drove 4.3% fewer miles in March (thats 11 billion miles). This is the largest drop since the agency started keeping track in 1942. In addition, the EIA reported gasoline demand is down 0.6% this year and will see the first annual decline since 1991. The EIA estimates demand will fall for all of petroleum's finished products - including jet fuel, diesel, and heating oil.
Proving how rumor/momentum based energy is these days - oil futures initially fell more than $2, but rebounded to close $2.18 after Morgan Stanley's Richard Berner forecast $150 per barrel this year. Mr. Berner basis his comments on continued demand from developing countries. However, some asian markets have already started to cut subsidies, and others are likely to follow suit. In a related note, Indonesia pulled out of OPEC today, as they had become a net importer of oil. No - not because of peak oil - but because foreign firms are uncomfortable with local laws and government corruption. The move leaves OPEC with only 12 members (Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Suadia Arabia, UAE, and Venezuala).
US Q1 GDP may be revised up from 0.6% to 0.9% today. Keep an eye on that!
In late trading, the USD rose to ¥104.93, the upper end of the ¥102 - ¥105 range, but above the ¥104.90 resistance.
GDP, durable goods, USD
