Weekly Recap and Outlook for the U.S. Financial Markets and Dollar - 6/28/2010
The U.S. Dollar resumed its decline last week, falling against most of the major world currencies, with the exception of the Canadian Dollar. The week started on an ominous note for the Dollar as the People's Bank of China, the Chinese central bank, announced over the weekend that it was taking steps to loosen the Yuan's peg to the USD. The peg has kept the Yuan at 6.83 to the Dollar for 23 months, and the rate was allowed to hit new highs on Monday without the usual Chinese central bank's intervention being seen.
This announcement also sent the USD sharply lower against the Kiwi and Aussie, and also generally lower against all the majors at the opening of the week's trading in the Far East. Gold also made a new all time high on the news last week, trading up to 1265.05 on Monday after the Chinese surprise, while crude oil held mostly steady at $79 a barrel.
U.S. Stocks began the week trading sharply higher after the news from China, however the rally was short lived, with the Dow Jones Industrial Average shedding a little over 300 points or 2.9% from its level the previous week to close at 10,143 on Friday. Similar losses were seen in the S&P 500, which retreated 41 points or 3.7% to close at 1,076, while the Nasdaq dropped 86 points to close at 2,223 and also showing a loss of 3.7%.
The U.S. stock market attempted a recovery on Friday after lawmakers delivered a watered down financial reform package which sent financial stocks soaring because the newer version of the reform package is much more favorable to Wall Street than expected. Goldman Sachs' stock was up $4.68, while J.P. Morgan Chase tacked on $1.41.
Nevertheless, this was not enough to push up the indexes, especially after U.S. GDP came out slightly lower than expected by showing that growth in the economy was running at just 2.7% versus a 3.0% market consensus for the key number.
Last Week's U.S. Data Review
The U.S. economic numbers seen last week gave no signs of any overwhelming improvement to the overall economic picture in the United States and growth prospects were downgraded. Essentially, the fact that the government has spent trillions in stimulus money, mostly to the benefit of large financial institutions and corporations, has just not made the impact that politicians promised for the U.S. economy.
Last week's U.S. economic data releases started off on Tuesday with TIC Long Term Purchases which came out at 83.0B versus a consensus of 77.3B, and provided a reflection of the Dollar positive risk aversion then prevalent in the market at the time of the data collection.
Also on Tuesday, Empire State Manufacturing Index came out at 19.6 versus a consensus of 20.1, and Import Prices showed a decline of -0.6% versus a -1.1% consensus, with the previous number revised upward from a 0.9% rise to a 1.1% increase.
Wednesday's housing and construction numbers came off as a bit disappointing with Building Permits at 0.57M against a consensus of 0.63M and Housing Starts at 0.59M versus an expected 0.65M. Also on Wednesday, PPI came out slightly higher than expected at -0.3% month on month versus a consensus of a -0.5% decline. Core PPI was also slightly higher than expected, increasing 0.2% versus an expected 0.1% increase.
On Thursday, Core CPI came out at 0.1% and CPI down -0.2% month on month, both more or less as expected, while Initial Jobless Claims showed a rise to 472K versus an expected 452K. Also on Thursday, the Philly Fed Manufacturing Index came out at 8.0, much lower than the 21.0 expected. The U.S. Current Account also came out at a deficit of -109B, much better than the expected -120B deficit, with the previous number of -116B adjusted upwards to an improved -101B.
Friday had no significant data released in the United States, although it marked the first day of high level talks among the G8 in Toronto, Canada. These were followed by the G20 Summit meeting held in the same city on Saturday and Sunday, in which world leaders agreed to cut government budgets across the board in an effort to slash fiscal deficits.
Fundamental Data Outlook for the United States
The coming week of economic data releases for the United States is quite busy and offers some key data for the forex market to review. Economic data releases feature Friday's key U.S. Employment data that includes the Non-Farm Payrolls number, as well as the Unemployment Rate.
The active week started on Sunday as the G20 Summit Meetings concluded in Toronto.
Monday offers Personal Spending (0.1% m/m), Personal Income (0.5% m/m), and the Core PCE Price Index (0.1% m/m), as well as a speech in Atlanta by FOMC Member Warsh.
Tuesday will see the release of the CB Consumer Confidence report (62.6) and the S&P/CS Composite-20 HPI (3.5% y/y).
Wednesday features the closely watched ADP Non-Farm Employment Change (58K) which might provide a preview as to the other employment numbers due out on Friday. In addition, FOMC Member Duke will make a speech in Columbus, the Chicago PMI (59.2) data is due to be released.
The bi-annual Treasury Currency Report is also tentatively scheduled for release on Wednesday which might point out countries considered by the U.S. Treasury to be currency manipulators. China's move last week to allow more flexibility in the Yuan's exchange rate versus the Dollar may have been taken to avoid criticism in this report.
Thursday is also busy, with Challenger Job Cuts (last -65.1%), ISM Manufacturing PMI (58.9), ISM Manufacturing Prices (72.2), Initial Jobless Claims (456K), Pending Home Sales (-4.5% m/m) and Construction Spending (-0.6% m/m) all due out.
Friday provides the undisputed highlight of the week, which is the key Non-Farm Payrolls release expected to come in at -103K. In addition, the headline U.S. Unemployment Rate is expected to rise slightly to 9.8%.
Also scheduled for release on Friday are Factory Orders (-0.5% m/m) and Average Hourly Earnings (0.1% m/m) which will end the active week.
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