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Forex Blog - U.S. Market Update
Dow -50 S&P -1 NASDAQ -10.3
- Markets are slipping lower again as oil makes new highs and investors digest
yesterday's declines and this morning's economic data. Crude spiked above the
$142 handle earlier this morning before retrenching slightly while the USD
strengthened against the EUR slightly overnight. Data showed personal income
and spending increased in May, with income marking the largest m/m gain since
2005. The PCE data came in largely in-line with expectations, leading some commentators
to suggest that companies are continuing to absorb rising prices without
passing them along to consumers. Investors are responding calmly to the latest
financial write down commentary: this time a Lehman analyst noted that Merrill
would increase its Q2 writedown by $1B and revised the firms FY EPS outlook
sharply downward. Homebuilder KBH-7% is falling after reporting a big miss on
earnings and large y/y declines in backlog, new orders and gross margins.
Housing names LEN-9%, CTX-4% and PHM-4% were falling on the news. SNE-3% and
ERIC-6% are falling after their jv Sony Ericsson issued a profit warning and
noted moderating demand for its handsets. Fellow cellular firms RIMM-5% and
PALM-6% are continuing their losses. CBK-10% slashed guidance after the close
yesterday (despite beating earnings & rev estimates for the quarter) and
was cut at various brokerages overnight. In more positive news, BDAY+63% after
Liberty Media announced it would acquire the firm for $3.90/shr. ANDE+24% after
guiding higher. ACN+5% is rising on positive earnings and higher quarterly and
FY guidance, as well as price target hikes at several brokerages. BUD is
gaining after formally rejecting the $65/share Inbev offer and providing FY
guidance for 2008 and 2009.
- Treasury yields continue to head south as the continued risk aversion theme
keeps a bid in bond prices. Unlike the past two session better buying is being
seen at the long end of the curve. The 30-year cash yields is heading back
towards the 4.50% level while the 10- year is now below 4% for the first time
in nearly a month. Fed fund futures are pricing in roughly a 25% chance for
rate hike at the next meeting while the Nov contract now sees less than 30%
odds of additional 25 basis points worth of tightening on top of any hike this
- In currencies, USD sentiment continues to be weighed upon by higher commodity
prices as WTI crude made fresh all-time highs above $141.70 per barrel during
the European morning, seemingly fulfilling analyst predictions of $150/bbl by
the July 4th. August gold is bringing the May highs back into view trading up
1.3% today to $927. The EUR/USD is trading at 1.5740 after unsuccessfully
piercing the alleged option barrier at 1. 5800. Recent hawkish EBC commentary
seems justified as German June preliminary y/y CPI data hit its highest level
since January 1994. Meanwhile, the S&P noted it does not anticipate the Fed
raising rates until recession fears have past. USD/CAD is testing its 100-day
moving average at 1.0062 as oil and gold maintain a form tone into the weekend.
- Some risk aversion is creeping back into currencies: Carry-related pairs are
moving lower as European equities experience a second day of losses. The
EUR/JPY retraced from fresh all-time highs on Thursday around 169.44, moving
back below the 168 handle. EUR/CHF was softer by 65 pips at 1.6060; the CHF was
also aided by comments from the Russian Central Bank noting the possibility it
would increase its holdings of CHF in currency reserves.
- European bonds opened higher on safe-have and sector rotation plays, but
climbing crude and increasing inflationary sentiment ate away at early gains.
Sept Bunds +5 ticks at 111.28 and Sept Gilt -25 ticks at 104. 95.
- Euro Stoxx 50 -0.4% at 3,350 and dealers noting that it is below a weekly
H&S formation with the neckline at 4,400. FTSE 100 Index +0. 4% at 5,543;
CAC 40 Index -0.2% at 4,414 and Dax Index -0.25 at 6,445.
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