Articles from August 2005

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.

Oil hits another high

Oil yet again reached a new high of $68 a barrel after the US reported a fall in petrol stocks. The rise in oil prices gave the Canadian dollar a boost as Canada is estimated to have the world’s second largest recoverable oil reserves in the world.

Some analysts even predict parity between the CAD and the USD if the current trend in oil prices continue.

It appears that the market sentiment for the Euro is quite strong at the moment as the Euro crossed the 1.23 mark despite weaker than expected IFO data. The IFO survey came in at 94.6 in August instead of the projected 95.2. The figure was also below July’s value, which means the first decline in three months.

The elections scheduled for the 18th of September might also be offering strength for the Euro in the medium term as it is reported that the likely alliance between CDU and FDP in parliament would allow much needed reforms to boost the German economy.

Initial claims data in the US came in as expected yesterday at 315k and seemed to calm the market down a bit after the negative durable goods orders earlier this week. The help wanted index, which rose to 39 from 38 in June, supported the initial claims data and the dollar in later trade.

There is very little in the form of data today, except for the UK 2nd Quarter GDP estimates out at 9:30am. The release will offer a first look at the breakdown of expenditure and the market expects to see weak consumer spending but a positive net trade contribution.

Disappointing durables sees Dollar slip

The US Dollar slipped back yesterday following a worse than expected US durable goods number. Official figures showed that industrial orders fell by 4.9% in July, following a 1.9% increase in June.

July’s fall was the biggest amount since January 2004. Analysts had been expecting a more modest 1.5% decline, with the figure released putting some serious pressure on the Greenback.

The USD slide yesterday showed some recovery later in the day on news that sales of new US homes surged by 6.5% in July to a record seasonally adjusted annual rate of 1.41 million. New homes sales in the States are up 27.7% since July 2004!

Overnight oil prices surged to a record high of $68 a barrel – the highest since U.S. crude futures started trade in 1983.

Oil prices were hounded by supply concerns due to a growing threat to oil facilities from an Atlantic storm and a large fall in U.S. gasoline stocks. Gasoline stockpiles in the US, the world’s top oil consumer (surprise, surprise), beat forecasts to register a slide of 3.2 million barrels in the week to August 19, widening the supply gap from a year ago.

August is peak driving season in the States with every man & his dog out on the highways in their 10-gallon Hummer sucking up a litre of petrol a second. The US Dollar opens understandably weaker this morning on the back of the record oil price, with little comfort on the horizon for prices to pull back soon.

Back on old Blighty, yesterday’s CBI survey revealed UK manufacturing orders fell at its fastest rate since October 2003. Whilst export orders remain steady, domestic demand has shown an obvious down-turn. With UK retail sales showing recent weakness, this is not entirely surprising. The UK manufacturing sector is at a stand still in comparison to robust growth in other parts of the world.

On the economic data front today, we have Germany’s IFO business climate index due out this morning. A positive number is expected here, in line with Tuesday’s better-than-expected ZEW business survey figure. The obvious benefactor of a good IFO index is the Euro, with the USD being the likely currency to suffer.

With nothing out of the UK to excite the masses (except the cricket of course), attention today then turns to the US weekly jobless claims figure and August’s Michigan Sentiment final reading.

Germany showing signs of recovery

The euro remained steady against the dollar despite further improvement in German business confidence. Analysts believe most of the rise in the closely watched ZEW survey yesterday was already priced in to the market.

There is a growing belief that the German economy is getting stronger, and as the largest economy in the Euro zone this could have a significant impact on the Euro going forward. The poll, which is based on the economic expectations of 294 analysts and institutional investors, rose to 50 points, against expectations of a more modest rise to 37.

Germany’s key IFO business climate survey, out tomorrow could provide further evidence that Germany’s economy is on the up. Those waiting for a rate cut by the Central Bank might now be left standing as the recent data stands in stark contrast to all the negative data from the Euro zone only a few months ago.

The first data of note today is the CBI Industrial Trends data from the UK. Thereafter focus will shift to the US where possibly the strongest indicator for this week, the durable goods orders will be announced at 1:30pm GMT.

With Boeing aircraft orders down to 88 from 162 in July this figure is expected to come in at 1.2% down on the previous month, anymore could lead to dollar sell off.

The new home sales data out just a bit later at 3:00pm GMT is also expected to dip down from last month’s 1.374m to around the 1.3m mark, this will fit in with the decline in the number of existing US home sales that came out yesterday.

Oil might come down from its recent highs today as US inventory data is expected to show a rise in crude stockpiles. The oil price has been hit all this week by concerns over supply so positive inventory data will come as a welcome breather.

Gold rose yesterday as the dollar failed to make any ground against the Euro.

The Rand slipped against the dollar despite slightly higher gold prices. The Rand might be taking its cue from the Euro while it would also look to consumer inflation data released this morning at 10:30 GMT for direction.

US Dollar loses some of it’s gains

The dollar wasn’t able to hold on to the gains it made last week, as it softened across the board yesterday. Despite weaker than expected current account data, the Euro still managed to push through the 1.22 level on the back of strong performances by the European equity markets.

The Yen also performed strongly yesterday after opinion polls showed that Prime Minister Koizumi who is seeking re-election on 11 September rose in the countries approval ratings.

This news also gave the Nikkei a boost increasing by 1.3% to a four year high. There also seems to be good support for the Nikkei and the Yen as many foreign investors are now looking at Japan to try and capitalise on the prospects of the countries recovery.

The Euro might hold on to its gains today if the ZEW business survey for August shows that optimism has increased again in Germany after rising about 23 points from May to July.

The recent rises in oil prices might however prevent further rises. Oil was again on the rise yesterday after weather concerns and doubts about supply from Ecuador, the North Sea and Iraq.

The fact that there isn’t much data out from the states this week means that today’s release of existing and new home sales data will be closely monitored.

The housing market is expected to cool down from recent record highs as sales of both new and existing homes declined in July partly due to interest rate hikes by the Fed.

Many traders are still reported to be bearish on the dollar meaning that weaker than expected data coupled with the lack of liquidity could spark a dollar sell off.

Slack volumes can bring volatile results

With the summer holiday season in full swing and with the upcoming bank holiday weekend, this could be described as potentially one of the quietest weeks of the year for the markets. Be careful though, the lack of money interest in the market around this time of the year has been known to cause a bit of volatility.

Last week was proof of this when the Euro/USD rate moved between 1.2450 and 1.2125 and GBP/USD traded up at 1.8160 earlier in the week to drop back to as low as 1.7890 in the second half of the week.

With no data out today let’s have a quick look at the data for the rest of the week:

Europe perhaps has the busiest week ahead with sentiment indicators out tomorrow and Thursday. Germany releases their estimate 2nd Quarter GDP figures on Tuesday.

Sweden’s Riksbank is expected to hold rates steady at 1.5% when they meet on Wednesday after a half point cut at its previous meeting.

In the UK we can look forward to Wednesday when the CBI issues its monthly industrial trends report and the Nationwide house price survey is published.

Friday sees the first revision of the 2nd Quarter GDP figures for the UK where growth is expected to be revised upwards from 0.4% to 0.5% on the quarter. The estimates are however still likely to show GDP growth below trend for the fourth successive quarter, this might prove more significant for the market than the upward revision.

The demand for the US Treasury two-year note sale on Wednesday will be closely watched along with durable goods orders on the same day.

Central bankers will take a week break this week at a ski resort in Wyoming to add to the quiet tone of the week, Alan Greenspan is reported to also be at the resort.

Sterling gains from Bank of England split

Sterling moved higher yesterday after the minutes of the Bank of England’s last monetary policy committee meeting revealed that members were closely divided over this month’s interest rate cut and that governor Mervyn King was outvoted for the first time since the committee was formed eight years ago.

Reinforcing last week’s hawkish inflation report, the minutes showed that the MPC voted by five to four to cut rates by 25 basis points to 4.5 per cent in August and emphasised that the reduction did not herald the start of a downward trend.

Charles Bean, BoE chief economist, who had voted for a cut in July, and the external members of the committee supported the move.

Rachel Lomax and Andrew Large, deputy governors, and Paul Tucker, executive director, joined Mr King in dissent, putting the MPC chair in the minority.

“It was quite shocking,” said David Bloom, currency strategist at HSBC. “Usually hawkish sentiment is good for sterling but if it comes at the expense of divisions at the central bank then it’s less sterling-positive. This could create volatility in the interest rate and sterling market, with everyone rushing to the latest set of data.”

Data released by the Office of National Statistics confirmed that the UK labour market continued to soften in July, with the number of people out of work and claiming unemployment benefit rising for the sixth successive month. Earnings growth remained muted in June at 4.2 per cent, in line with expectations.

The Pound reached six-week highs against the euro, gaining 0.5 per cent to £0.679, its highest since before the bomb attacks in London on July 7. The pound reversed early losses against the dollar to stay flat at $1.8098.

The dollar remained rangebound following the release of strong US producer price inflation data, which showed the headline PPI rising 1.0 per cent in July, about twice as fast as expected, after a flat outcome in June.

Surging energy prices accounted for about 60 per cent of the gain, but the core measure, which excluded food and energy, jumped 0.4 per cent in July, against expectations of a 0.1 per cent increase, with price increases in other commodities bleeding through to producer prices.

The greenback rose 0.4 per cent against the euro to $1.2295 after striking two-week highs, and gained 0.9 per cent to C$1.2086 against its Canadian counterpart.

The yen came back from early losses against the dollar to strengthen fractionally to Y109.51 as the benchmark Nikkei equity index finished down 0.35 per cent, despite hitting a four-year intraday high. A poll put Japanese prime minister Junichiro Koizumi’s approval rating at 51 per cent, up from 46 per cent, with the market already pricing in a clear election victory and solid economic growth in the second half of the year.

Elsewhere, the Swiss franc ticked higher following hawkish comments from Swiss National Bank board member Niklaus Blattner, who warned that interest rates could not stay at current low levels for long given the promising economic outlook for the Swiss economy.

The franc gained 0.1 per cent to SFr1.5488 against the euro, but slipped 0.3 per cent against the dollar.

Dissent within the MPC assists sterling gain

The minutes of the Bank of England’s last monetary policy committee meeting were released yesterday. For the first time since it’s inception eight years ago, Mr Mervyn King, the MPC governor, was outvoted 5-4 in favour of cutting rates by 25 basis points to 4.5% in August.

The closely divided vote emphasised that the cut was more of an anomaly, and reinforced the market opinion that rates will now likely remain unchanged for the rest of the year.

Data from the National Statistics office confirmed the continued softening of the UK labour market in July. For the sixth consecutive month new claimants numbers rose.

The pound reached six-week highs against the euro, gaining 0.5% to £0.679. This was notably the highest since before the bomb attacks on July the 7th. Sterling reversed earlier losses against the dollar to finish flat at $1.8098.

The dollar remained range bound following the stronger than expected US PPI numbers released yesterday. The producer price inflation data saw the headline rate rising 1.0% in July. This was twice as fast as was anticipated by the market. The main reason for the rise was the souring price of energy. Many are now asking how long US retailers can continue to absorb these higher costs.

Key economic data due out today include UK retail sales (9.30am BST). The expectation is that July will see a contraction of 0.8% bringing annual retail sales growth to 1.8%. EMU CPI inflation is expected to show a 0.1% increase to 2.2% for June. Also due out today are US jobless claims (estimate of 315k) and industrial production for June. The market is expecting 0.3% in US manufacturing.

Sterling rises as further UK rate cuts look more unlikely…

Consumer price inflation hit a record high yesterday, rising at it’s fastest pace since records began back in 1997. The data showed that UK price inflation climbed above the governments target to 2.3% in July.

The market had forecasted 0.1% increase from June’s 2.0%. The rise was partly due to higher oil prices but offsetting summer retail discounts helped to reduce the overall increase. Service sector inflation also rose to a two and a half year high of 4.5%.

The statistics further diminish prospects of interest rate cuts before the end of the year following the 25 basis point reduction to 4.5% in August. Sterling gained 0.2% against the euro to reach 0.6812, stayed relatively flat against the yen at Y197.74 and gave up early gains against a resilient dollar to close at $1.8090.

News from the Royal Institute of Chartered Surveyors that UK house prices fell in July at their slowest pace for five months, also helped buoy the pound.

The dollar crept higher on the back of US inflation data that showed headline prices rose by 0.5% from the previous month, against a forecast of 0.4%. The greenback steadied on news that industrial output rose by 0.1% month on month in July.

Today’s sees the release of the MPC minutes. The reasoning behind the cut had been clear; GDP growth had slowed more sharply than anticipated, but it’s the level of consensus that will be eyed to see how members voted. Most commentators predict a 7-2 split.

UK unemployment figures are due out at 9.30am this morning. Most analysts are predicting the claimant count to continue its rising trend in June. This will have been the 8th rise in the past eleven months.