Monday August 2, 2004 - 10:57:42 GMT
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US OPEN MARKET POINTS 08-02-04
Confused? You are not alone. US Q2 GDP printed meaningfully worse at 3% vs. 3.6% expected, but Q1 GDP was revised materially better from 3.9% to 4.5%. Personal consumption reported 1% - only half as much as forecast - but Chicago PMI checked in at 64.7 far exceeding 60.0 predictions. To top it all off late afternoon Friday the White House announced that the 2004 US budget deficit would register -$445Bn which was lower then the -$531Bn originally projected but higher then the -$420Bn whisper number floated just a day ago. By end of Friday’s session both USD bull and bears stood frustrated and bewildered. The majors, which initially spiked by over 100 points against the greenback ended the day essentially unchanged wiping out both longs and shorts. As the trading desks closed for the weekend only one issue seemed clear: US economic data had become notoriously volatile and contradictory.
Within that volatility however, one theme continues to resonate. Dollar uptrend rests on future US growth. US growth is contingent on the consumer and US consumer depends on a raise in his paycheck. Because wage growth has been excruciatingly slow – this year registering the smallest increase since statistics have been gathered -- creation of new jobs becomes key to USD bull case. According to CALYON research this Friday NFP number is expected to rebound to 275K from last months 112K. Should this prediction come true then the bullish price action of the dollar would be validated.
But next Friday seems a lifetime in FX these days and the overnight markets have already reversed some of the USD rally. Aided first by the Al-Queda terror threats which brought buyers to the “safe haven” Swissie, the majors received a further boost from positive PMI numbers out of Europe and UK. The UK PMI numbers of 56.3 vs. 54.5 expected were especially bullish as strong gains in new orders, export orders and employment component showed once again that the UK economy is performing as smoothly as a brand new Aston Martin.
Today’s US ISM Manufacturing report expected to rise to 62 vs. 61.1 may temper the overnight counter dollar move. However, with the front of the week loaded with additional Euro-zone and UK eco data and Thursday’s possible BoE rate hike of 25bp on the schedule, the dollar may sustain some further selling pressure until Fridays’ big event.
Key Overnight Developments
- EUR ITL and GE PMI all above expectation with only the FRF PMI below forecast. Overall EU PMI 54.7 vs. previous 54.4
- GBP PMI 56.3 vs.54.5 expected as almost all components perform above forecast
FX Spot Overnight
- EUR gaps up off terror fears and maintains strength off PMI data targeting 2100 handle
- JPY loses 111 handle on continued profit taking; overall dollar weakness
- GBP rockets past 8300 handle adding 130 points off good PMI data and rate expectations
- CHF breaks the 2700 handle as “safe heaven” money pours in
13:00GMT – (9:00 AM EST) CHF PMI Manufacturing (July) Expected at 57.8, Previous 57.0
14:00GMT – (10:00 AM EST) USD ISM Manufacturing Index (July) Expected at 62.0, Previous 61.1
14:00GMT – (10:00 AM EST) USD Construction Spending m/m (June) Expected at 0.0%, Previous 0.3%
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