RSSWednesday's Economic Calendar May Jolt the Dollar
By Kathy Lien | November 02, 2009 | 6:06 PM | 0 Comments
An erratic day of trading results in generally widespread dollar weakness after a barrage of world-wide manufacturing reports indicated that the sector will continue to aid the recovery charge. Right out of the gates, the dollar was a big loser, with a more than 100 pip move lower against the euro. However, the rallies in both currencies and stock were faded when the Associate Director of the Fed's regulatory arm called the financial system "far from robust". What was bad timing on the Fed's part reversed much of the risk rally that was seen in early trading. However, a late day rally managed to revive some of the earlier gains. Even though most currencies are off their highs, the big mover of the day was USD/CAD which shed 0.61 percent. Furthermore, the pound, which was one of the only majors not to make some gains, fell by a third of a percent. The S&P 500 closed up 0.64 percent, after reaching highs of 1.5 percent.
Big Departure from Last Week's Woes
Today's string of data offered a sharp contrast with the sheer amount of disappointed that we were served on Friday. The tables have at least temporarily turned, as all of today's indicators pointed toward improved activity. The most well received surprise was the surge in Manufacturing ISM to 55.7, which has managed to stay above the 50 expansion line for the last three months. The magnitude of the three year high in the ISM report was arguably eclipsed by the employment component which saw its first surge above 50 in a year. Since we often use the employment component as a leading indicator for the Non-Farm Payrolls report, the improvement is very significant. However, we will still need to see the ISM Non-Manufacturing report justify the argument for a stronger employment report for Friday. It seems that at least in the short-run, the continued performance in manufacturing may be able to sustain the recovery until the consumers start to come around. The only question is how long that might take. Another good sign was found in Pending Home Sales. With the utter collapse in New Home Sales from last week, it is very surprising to see pending sales put economic estimates to shame. The report showed a rise of 6.1 percent, versus expectations that the index would be unchanged. However, with rebates to first-time home buyers expiring by month-end, we still have to assume that the improvement was the caused by the last attempts of potential buyers to take advantage before time runs out. The final report released today was Construction Spending which shows its largest rise in a year thanks to some renewed homebuilding projects.
Calm before the Storm
Tomorrow's schedule will represent the calm before the storm as it includes little to get markets moving. However, Wednesday's schedule will not only present the ISM Non-Manufacturing Index but the Fed's rate decision. The ISM report is critical for supporting expectations for a significant improvement in employment for Friday's report. Today's release of better Manufacturing ISM is a step in the right direction, but no indicator for jobs is more significant than the employment component of Services ISM. Wednesday's Challenger Job Cuts and ADP Employment will also give a clearer idea of where jobs are headed. The Fed, on the other hand, has reached an impasse where it has ended treasury purchases and must now decide what there next step will be in terminating the unconventional initiative for good. This process is unlikely to take effect anytime soon, but it will certainly be promising if the Fed holds extended deliberations on the issue. The FOMC is faced with an overall improvement in the economic climate, driven primarily by the huge GDP report and a slight improvement in annualized consumer prices. However, optimism has been hampered somewhat by key health of the consumer indicators like Consumer Confidence and Personal Spending.
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