• Home ::
• Technical ::
• Forex Strategy ::
• Forex Trading Strategies

Forex Trading Strategies

Weak US consumer confidence gives risk appetite a definite nudge lower

Mon, Aug 17 2009, 07:39 GMT
by Saxo Bank Strategy Team

Saxo Bank  |  View company's profile

Vote:

a9447762-3d97-4431-9566-24e3a4bc7ab4

10

0

• Send
• Print
• Add To
• Rss

Improving Japanese Q2 GDP data unable to lift the gloomy air

MAJOR HEADLINES – PREVIOUS SESSION

• US Jul. CPI out at flat m/m, ex –Food/Energy at +0.1% m/m, both as expected, vs. +0.7%/+0.2% prior resp.  

• US Jul. Industrial production out at +0.5% vs. +0.4% expected and -0.4% prior

• US Jul. Capacity Utilization out at 68.5% vs. 68.3% expected and revised 68.1% prior

• US Aug. Univ. of Michigan Confidence index out at 63.2 vs. 69.0 expected and 66.0 prior

• UK Aug. Rightmove House Price Index out at -2.2% m/m, -3.1% y/y vs. +0.6%/-3.1% prior

• JP Q2 GDP out at +0.9% q/q, +3.7% y/y vs. +1.0%/+3.9% expected and revised -3.1%/-11.7% prior

• China Jul. Actual FDI YTD out at -20.3% y/y vs. -16.8% expected and -17.9% prior

• SI Jul. Non-oil Domestic Exports out at -8.5% y/y vs. -11.0 expected and revised -11.1% prior

THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

• Swiss Retail Sales (0715)

• Denmark Wholesale prices (0730)

• Norway Trade Balance (0800)

• EU Euro-zone Trade Balance (0900)

• US Empire Manufacturing Index (1230)

• US TIC Flows (1300)

• US NAHB Housing Market Index (1700)

Market Comments:

In the latter stages of last week we saw increasing evidence that the US consumer was not yet ready to buy into the great recovery story. Following on from Thursday’s disappointing US retail sales numbers, a leading indicator of consumer sentiment, the University of Michigan Confidence Index, also showed disappointing tendencies.
Expectations were for an improvement of some three points on the index, from 66.0 to 69.0, but in the end we saw a deterioration of almost the same magnitude, with the index coming in at 63.2.

Prior to the consumer confidence numbers, markets were stable having found an anchor in flat CPI readings for July and a better-than-expected industrial production performance (though this was likely influenced by a return to production of the auto sector).

Subsequently, Wall St went into retreat and the familiar risk aversion theme in currency markets came into play (weak stocks = strong USD and JPY = weak “risk-bloc” currencies). The AUD was particularly vulnerable after a weak Asian close following reports from China that expansion of its steel sector would be halted, with the consequent ramifications for Australian iron ore exports.

The fall in US consumer confidence has had a lasting impact on commodities. Copper was 5% limit-down in Asia this morning, chasing similar losses on the LME on Friday, while gold hovers near 1-week lows and oil holds below the $70 mark. The weakness ensured that the AUD remained the worst performer in the Asian session today and we could be facing a sustained period of weakness, something that we have been warning of recently. Australian market sentiment not too impressed on news that Perth-based miner, Fortescue Metals Group, has broken away from tradition and struck an iron ore price with China below the benchmark set by Rio Tinto with Japanese steelmakers. China's Iron and Steel Association (CISA) has been quick to announce that it would now negotiate with the three top iron ore miners - Rio, BHP and Vale - using the price it agreed with Australia's 3rd largest miner as reference. Another reason for the extended risk aversion theme came from the equity side, with most Asian bourses heavily in the red. Shanghai shares continued their downward journey for the eighth session, down over 2% on the day and now close to 15% lower than the August 4 peak.

The one positive piece of news from Asia was largely ignored in the drive to accumulate dollars. In the headlines, Japan emerged from its worst recession since World War II during the second quarter of the year, registering 0.9% q/q growth in the period. This was the first quarter of growth in five attempts, and a sharp turnaround with the fastest quarterly growth since Q1 2008. The rebound was given additional impetus by upward revisions to previous quarters’ data. External demand proved to be the biggest driver of the turnaround, pushing overall growth up by a solid 1.6%. Private consumption also expanded for the first time in three quarters thanks to recent government stimulus plans but corporate capital spending and housing investment remained a drag on the numbers. While welcome, it still seems the Japanese recovery story remains extremely fragile. Indeed, Japanese Economics Minister Hayashi was on the wires shortly after the release highlighting that economic conditions would remain severe and reminding that there were still downside risks from the global economy and jobs situation.

It is a slow start to the week on the data front with only Norway, Euro-zone trade data and Swiss retail sales on tap in Europe. Later in the session we see the Empire State Manufacturing Index, latest TICS data and the NAHB Homebuilder Index. Most data releases will likely take a back-seat to the dominant theme of “risk-off” during today’s session.

Published on  Mon, Aug 17 2009, 08:07 GMT

Vote:

a9447762-3d97-4431-9566-24e3a4bc7ab4

10

0

• Send
• Print
• Add To
• Rss