Dollar rises on higher confidence and yet another record for oil

The US dollar traded higher yesterday following the release of better than expected consumer confidence data from the Conference Board.

The headline index unexpectedly rose to 105.6 in August from a revised 103.6 in July. Market consensus was anticipating a decline in confidence to 101.5. Despite higher energy costs, confidence among US consumers was buoyed by the perceived strength in the job market, with the “jobs plentiful” sub-index rising to 23.5 from 22.9 in July.

The price of oil hit new record highs in the wake of hurricane Katrina. US light crude rose to $70.85 a barrel and in London Brent crude rose to $68.24. This comes as Katrina hit the oil-producing region of the Gulf of Mexico. The oil output of this region was almost at a stand still as Katrina shut down 90% of production.

Although the full extent of the damages will not be known for some time, a comparison of previous destruction caused by Hurricane Ivan last year indicates that it is not inconceivable for oil to top $80/barrel in the near future.

The Chicago PMI out today is expected to fall after a slump in motor vehicle output and the high oil prices add additional risk. The data is out today at 3:00pm GMT.

The news here in the UK is that retail sales are falling, so too is credit card debt levels and vacant shop space is increasing. It is reported in the papers today that credit card debt is at its lowest level of increase since June 2001 and according to the CBI sales trends are at their weakest in 22 years.

The GFK consumer confidence figure out today at 10:30 is expected to continue to rise, boosted by the recent cut in interest rates. Consumer confidence remains high by historical standards and sits oddly with the sharp slowdown in consumer spending.

In Europe we have unemployment data from both France and Germany with an increase expected in France and a slight decline in Germany. Also out from the Euro zone is CPI inflation data, inflation rose from 2.1% in June to 2.2% in July due to higher oil prices.

Although oil prices still rose in August it wasn’t as strong as the rise this time last year and therefore today’s figure at 10:00am is expected to come in 2.1%.

The Yen declined against the dollar yesterday, and is expected to continue along this trend as it is susceptible to high oil prices. On the flip side of the coin the Canadian dollar continues to strengthen due to the countries massive oil stocks.

The Canadian Dollar was the only currency to strengthen against the dollar yesterday due to the rise in oil prices. Gold closed at a four week low of $429 following the firmer dollar.

Simon Jones & Katrina on the rampage

You’d have thought it would be a quiet start to the week with public holidays in the UK and in the US yesterday. However at home, we’ve been celebrating a fantastic win in the fourth Ashes test, with Simon Jones leading the charge with 5-44 in the Australian first innings and Feddie slogging a ton in the 2nd.

In the US, Hurricane Katrina was causing similar amounts of damage in the Gulf of Mexico and the Southern US city of New Orleans. Reports of two oil platforms drifting freely in the Gulf put obvious pressure on oil prices, as they rallied back over $70 a barrel.

Markets calmed somewhat as Saudi Arabia said they would increase production to make up for the shortfall as 92% of oil-producing facilities in the Gulf of Mexico remain closed down for the moment.

The USD dollar was expecting some pressure as Katrina approached, as historically hurricanes have had a big impact on the price of oil. In the past year alone, no less than five hurricanes have markedly affected the price of West Texas Intermediate Crude.

However, the Greenback firmed in overnight trade as damage reports from oil facilities of the coasts of Louisiana & Texas weren't as bad as first expected.

As last week was surprisingly sparse of key economic data, this short week has plenty of punch for market movers. Locally out of the UK today sees consumer credit & mortgage figures for July and the CBI distributive trades report.

Out of the US today, we have August’s Consumer confidence figure; a fall is expected here with higher petrol prices at the pump. US Factory orders for July are also due at 3:00pm BST; with a significant fall here expected the USD could feel some heat.

The FOMC minutes from August 9th’s meeting are released later this evening, with markets expected to pour over the wording of it to get any insight into inflationary pressures and future rates rises. This week’s key piece of data is the US Non-farm Payrolls due Friday; a positive number is anticipated here, which would lend support to the US Dollar moving into the week’s end.