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October 31, 2011

Forex Market Outlook 10/31/11

Filed under: Forex News — Tags: china, chinese, currencies, currency, euro, forex market, fundamental, government, interest-rates-, japanese, point, trend, yen — admin @ 7:04 am

This Halloween is turning out to be more trick than treat as the market digests the events of the past week, particularly the Euro debt resolution. This week is starting out in risk aversion mode with US dollar strength and stock market and commodities weakness.

One of the “tricks” from over the weekend was the unilateral currency intervention by the Ministry of Finance in Japan, who took action to weaken the Yen citing excessive speculation and one-sided moves that don’t reflect the underlying economic fundamentals. This has caused the Yen to fall some 4% vs. USD and is the third intervention this year undertaken by the Japanese. It must be noted, however, that this intervention was taken by the government itself and not the Bank of Japan.

So this week has started out with a bang in what is going to be a heavy week for economic data around the globe. A G-20 meeting, Central bank decisions, GDP figures, and employment numbers all can move markets so this week is likely to see some volatility which is great for the shorter-term traders. Let’s start with the highlights region by region from around the globe and discuss the potential data moving events taking place this week.

In Australia, tomorrow’s RBA rate policy decision will be significant if they lower rates by 25bp as some are expecting, though the overall consensus is still for no change. This means that the statement will likely be dovish as inflation concerns are less important than the global growth story. This announcement will be preceded by Chinese PMI manufacturing figures which may be more impactful as it gives a gauge of Chinese growth which ultimately is a proxy for the Australian economy.

In New Zealand, building permits plunged by some 17% although gains of 2% were expected and Wednesday’s unemployment rate is expected to improve to 6.4%.

In the Euro zone, there are still many questions to be answered with regard to the details of the resolution and now it looks like banks want to use accounting gimmicks to re-capitalize rather than raise private funding. CPI data came in slightly higher than expected, showing inflation at 3% vs. the 2.9% expectation. This is unlikely to impact Thursday’s rate decision, though the ECB may attempt to come off hawkish to prove they are sticking with their mandate. German retail sales figures came in lower than expected and their unemployment figures are due out on Wednesday.

The Pound is lower as home price figures came in lower than expected and tomorrow’s GDP figures are expected to showing slow growth, though it must be noted that the decline in government spending may be responsible. Various PMI figures are spread out along the week so these may be better barometers of the health of UK business and industry.

In Canada, GDP figures came in better than expected this morning, showing a YoY figure of 2.4% vs. the expectation of 2.2% with the quarterly figure higher by .1%. Raw materials and producer prices were also higher so there may be signs that inflation is starting to pick up. Friday’s employment report is expected to show 15K jobs added and the unemployment rate to remain steady at 7.1%.

And finally here in the US, this Friday’s NFP is expected to show a gain of 95K jobs and the unemployment rate to remain steady at 9.1%, though those estimates can change in the ensuing days. Wednesday’s FOMC meeting may be significant if Bernanke hints at further monetary easing or QE3. While corporate earnings have been good, unemployment has been stubbornly high and the Fed chief just can’t help himself and see the need to tinker with policy as if it makes a difference. At this point he is likely pushing on a string and money can’t get much cheaper—its up to fiscal policy now to determine the fate of the economy and whether or not confidence will be instilled.

The deficit super-committee is charged with finding an answer and at this point the prospects don’t look good. Add in a G-20 meeting this week which may show how much IMF involvement (read US taxpayer) is included in the Euro debt deal and we will see some volatility.

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October 26, 2011

Forex Market Outlook 10/26/11

Filed under: Forex News — Tags: account, announcement, correlations, currency trading, euro, europe, interest-rates-, trader, usd — admin @ 7:10 am

Today is the day of reckoning for the Euro as the market is expecting the final resolution to the Euro debt crisis. At this point it is still uncertain at exactly what time the details of the plan will be released so stay on your toes today and pay attention to the news!

Yesterday’s risk aversion and subsequent sell-off non-withstanding, the markets have been moving markedly higher since early October and it looks like we have put in a bit of a “V-bottom”, which I identified in yesterday’s chart of the day. It will be interesting to see if the market can sustain this rally in the face of the Euro announcement.

There are many rumors circling around the details of the plan so I will throw a few out there that I am hearing but take them with a grain of salt as they may be utterly worthless when the plan is announced.

For starters, Greek private bondholders will be taking a “voluntary” 50% haircut on their holdings, meaning losses. How this doesn’t constitute a technical default is beyond the scope of my limited understanding, but If I held bonds and CDS, I would push for default and not voluntarily agree to losses as I can get paid out 100% from the insurance. This may take a while to play out and I am as intrigued as anyone to see how it goes.

Next, the size of the EFSF is rumored to be in the $1 trillion dollar range, though it is uncertain if this comes as a combination of the current EFSF and the ESM (two separate facilities) or if they plan to leverage up the fund through the ECB. Banks will need to be re-capitalized to stem the losses from the haircut on the Greek bonds, and will need to be shored up if contagion occurs.

The idea of an SPV, or special purpose vehicle, is being floated that will allow private investors to invest with some sort of guarantee or backstop from the funds. This may be a way to funnel more IMF aid into the equation.

Lastly, there needs to be increased fiscal austerity, most notably now from Italy as they are the region’s 3^rd largest economy and are currently being vilified as the next potential domino to fall. It is amazing to me that no one even talks about Portugal or Ireland any longer.

So what is my outlook? I think that the markets will rise on the announcement, perhaps dramatically, only to begin to fall once the details are released. I think EUR/USD can get above 1.40 today, but resistance up at 1.413 may hold so if the3 situation presented itself, I would probably be looking to short the pair in the high 1.40s with the hope that it could move down to 1.375 where at that point I would be a longer-term buyer.

Other news out there today is that CPI data in Australia came in lower than expected, reducing expectations for further rate hikes and actually putting rate reductions into play. While the RBA will likely hold for a bit to see how this all shakes out, they will be keeping a keen eye on inflation. Later tonight, the RBNZ will be out with New Zealand’s rate decision and a change is unlikely considering their lower CPI data reported yesterday.

Here in the US, durable goods orders fell less than expected which is a positive I suppose, but yesterday’s consumer confidence figures were absolutely atrocious. However it is important to note the discrepancy between what people say and what they actually do. Later this morning, new home sales will be out.

But all eyes and ears will be waiting for the Euro announcement. The markets appear poised to move higher as stock market returns have been flat for the year so if you’re a big-time money manager, you essentially have one quarter to make it happen and earn some cash or even keep your job. In addition, I think global inflation has been somewhat masked by the cloud of uncertainty of the euro debt crisis and we have seen recent big-time gains in commodities, most notably in oil and gold which are back above $90 and $1700 respectively.

The idea that QE3 may be on the table is likely contributing to Dollar weakness, but all of these other factors are important as well. US corporate earnings have largely been better than expected which means that companies gain make money in a downbeat economy and despite barriers created by bad government policies and potential higher taxes.

With a declining US dollar and next to nothing bond yields, the stock market is likely going to be the market of choice for investors to close out the year so I expect the correlations in the forex market to continue to keep up. The Dollar weakness theme is evidenced by a strengthening Japanese yen, which is at new all-time highs of 75.75. While Japanese officials are crying, there may be very little they can do about it.

So stay on your toes today and be quick to react. Don’t try to be a hero in front of these markets, as there is no telling what may happen. Good Luck!

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October 5, 2011

Forex Market Outlook 10/05/11

Filed under: Forex News — Tags: account, avoid-the-topic, currency-pairs, gbp, interest-rate, interest-rates-, invest, mike conlon, number, practice account, trend — admin @ 7:06 am

Was yesterday’s intense rally just a pause in the selling or does this mark a reversal of trend? This is the million dollar question and one that the markets are weighing very carefully. The catalyst for yesterday’s move higher was none other than Fed Chairman Bernanke who stated in his speech to the Joint Economic Committee that further monetary stimulus could be forthcoming.

This gave the markets an immediate shot in the arm and they rallied on those words as the thought of more free Fed money is too good to ignore. Many thought, including myself, that given the politics of further easing he might avoid the topic, but with the recent selling taking place something had to be done. So I applaud him for his courage, though political pressure seems to be waning against complete opposition to further monetary stimulus.

This was enough to push markets higher including the Euro, which had maintained strength until this morning after Moody’s downgraded Italy by three notches and warned that further downgrades of other countries could occur. Couple this with weaker PMI services figures from the Euro zone and declining retail sales figures (-1% vs. an expected -.7%) and the economic picture doesn’t look much better than it did two days ago.

Yet for some reason the markets believe that EU leaders are making serious strides toward a debt crisis resolution this time, all but admitting that they haven’t taken this crisis seriously enough to this point. One positive note was a vote of confidence in Portugal as investors passed on an opportunity to receive early payouts from a bond issue, electing to wait it out.

In the UK, GDP figures came in slightly worse than expected, showing a gain of .1% for the quarter vs. an expectation of .2%, bring the YoY figure down to .6% from the expected .7%. While this does indeed show a declining economic picture, it is unclear if this is enough to cause the BOE to increase asset purchases at tomorrow’s rate decision.

The EU rate decision also tomorrow, though, is another story. The ECB has been reluctant to step up in the wake of the debt crisis and it will be interesting to see what if anything they announce tomorrow. They could use this platform not to change rate policy per se, but rather announce plans for how they plan to combat the debt issue. The difference between the two rate decisions is that the BOE does not issue a statement with their decision, and the ECB does.

Rounding out the news from around the globe, Australian retail sales figures came in better than expected, showing a gain of .6% vs. an expectation of .2%. This has helped push the Aussie higher in conjunction with the Dollar weakness we saw yesterday and the follow-through this morning.

The ADP jobs report came out here in the US this morning and showed an increase of private sector jobs of 91K, vs. an expectation of 75K. While this number bears no significant correlation to Friday’s Non-Farm Payrolls report, it should be noted that although Friday’s NFP is expected to show a gain of around 60K, the number of private sector jobs expected to be added is closer to 100K.

While the markets started the morning in risk-taking mode, it appears as though we are giving back some earlier gains as both stocks and risk assets are selling off a bit. While still in positive territory, it will be interesting to see if this rally can be sustained or if it was just a one-day wonder.

So today may be what we call an “inside day”, where we make neither new highs or lows as we wait for the rate decisions of tomorrow to guide sentiment. And of course any news out of the Euro zone will be dissected, though the usual “no news is good news” mantra may not hold water in this situation. Clarity form the Euro zone is needed, and not obscurity.

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October 3, 2011

Dismal Eurozone Manufacturing Data Could Force Interest Rate Cut

Filed under: OANDA News — Tags: a-update-may, central-banks, eur, european, eurozone, indeed-the-case, interest-rates-, manager, pressure-on-the, reading, what-the-latest, within-the-debt — admin @ 2:45 pm

Speculation that the European Central Bank will be forced to slash interest rates has intensified in light of the most recent manufacturing data. The Markit Purchasing Manager’s Index (PMI) shows that for the second straight month, manufacturing in the Eurozone contracted due to weaker domestic demand and plunging export sales.

For the month of September, the index recorded a score of 48.5 compared to 49.0 in August. An index reading of less than 50 indicates a retrenchment meaning that for the second straight month, manufacturing in the Eurozone contracted.

This alone should be sufficiently alarming for Eurozone officials, but what the latest index reveals about the state of Germany’s manufacturing status, should be absolutely terrifying. Germany’s individual PMI reading for August was 50.9 – for September, the reading fell to just 50.3. While still indicating expansion, the PMI result is down considerably from the previous month and barely within the positive range.

Germany’s manufacturing sector is by far the largest manufacturing center within the Eurozone and is touted as the “engine” that will help power the Eurozone to recovery. If that is indeed the case, a tune-up is badly needed.
Until being surpassed last year by China, Germany was the world’s largest exporter with nearly $1.4 trillion (1.05 trillion euros) in sales estimated for 2010.

If German manufacturing continues to decline, there will likely be two immediate outcomes. Firstly, Eurozone unemployment will worsen as German manufacturing firms reduce worker headcount to address declining demand for manufactured goods. Secondly, this could very well serve as the catalyst that forces the European Central Bank to slash interest rates.

The combination of job losses and weaker export sales will bring pressure on the ECB to do more to boost economic activity within the debt-stricken Eurozone. In the wake of the last recession, the ECB initially resisted interest rate cuts and lagged behind the other major Central Banks in reducing lending rates. Starting in the final quarter of 2008, the Bank finally began implementing a series of quarter point rate cuts reducing the benchmark rate to 2.0 percent by January, 2009, and eventually to 1.0 percent by May.

The Bank then held the line on interest rates for almost two years before implementing two rate hikes increasing rates to 1.5 percent by July, 2011. With the exception of Australia and New Zealand, European interest rates remain well above the rest of the major economies, but the manufacturing data update may force the ECB to once again consider slashing interest rates.

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September 28, 2011

Forex Market Outlook 9/28/11

Filed under: Forex News — Tags: australia, cad, carry trade, credit-default, currency, currency market, currency trading, default-at-over, fear, interest-rates-, invest, loonie, president, rate-decision, trader — admin @ 6:52 am

Sometimes it feels like Groundhog Day in the forex market as we focus on the same thing over and over again. So it should come as no surprise that again we are focused on the Euro debt crisis as there is very little other news to sway market sentiment.

Perhaps it will be best if examine the recent events and what they mean for the markets. Yesterday, Greece was able to pass the vote that raised property taxes as was required by the deal that was made back on July 21^st as part of their austerity measures.

But now there is some concern that figures that were used to hammer out that deal have now changed, which means that there could be some opposition to the already-agreed-to plan. What’s more, the votes to ratify the EFSF are just taking place now in each of the individual countries of the Euro zone, to be able to ratify the previous deal.

The vote to ratify the EFSF deal has already been delayed and is just a formality if all of the countries agree to ratify. But why has it taken so long to put it to a vote? This really should be a done deal by now, that is, if they really want to rescue Greece. If you do X, you get Y.

But now there are fears that some countries are balking and the constant delaying has kept markets on edge. I agree with President Obama when he said that Euro inaction is “scaring the markets”. Of course this elicited a pushback response about the fiscal situation in the US, which of course is true, however it doesn’t justify Europe’s behavior throughout this mess.

So the markets are waiting for the “Troika” (ECB, IMF, EC) to come back with their findings in order to potentially move forward. One of the additional impediments is that there will be multiple votes over the course of this process and any on slip-up could put Greece in default. This is one of the reasons why the CDS (Credit Default Swap) market has the odds of a Greek default at over 90%.

So what can the Euro zone do? Well the idea of expanding the EFSF by levering the balance sheet up has been dismissed as “stupid” by a German official as it could incur a credit downgrade. So much for Geithner’s suggestions to help.

Contagion is the obvious issue that plagues the Euro zone right now. If they could let Greece go without causing similar problems in the other countries with debt issues then I think they would in a heart-beat as Greece is actually a pretty small percentage of the region. Which is also why Merkel’s comments about “building a firewall” around Greece the other day were telling as perhaps there may be more of a push to that end.

Surprisingly, the markets have been faring pretty well the last two days, though yesterday’s afternoon sell-off in stocks here in the US and the subsequent follow-through in Asian markets caused some overnight risk aversion. We have clearly been trading on risk themes in the market and the correlations of currencies have been pretty strong of late.

It’s essentially Dollar and Yen strength on risk aversion, everything else strong on risk appetite. The risk appetite we’ve been seeing this week has been pretty strong, though some are dismissing it as a bit of a relief rally. We have seen expanded to declining range-bound activity in the markets, and this makes sense when we consider that it is the same things over and over again that are ruling market sentiment.

This means increased volatility as the markets proceed with caution, knowing that at any given moment, news can break from the Euro zone which could impact market sentiment. Therefore, it is very important to keep yourself informed about the news and its potential impact, as it has the ability to disrupt trades if you’re not paying attention.

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September 2, 2011

Forex Market Outlook 9/2/11

Filed under: Forex News — Tags: a-storm-brewing, commodities, currencies, currency market, currency trading, interest-rates-, markets, mike conlon, nzd, time, trader, trend — admin @ 7:08 am

Wow, we have just received one of the worst Non-Farm Payrolls reports on record, which showed that ZERO jobs have been created last month. That’s right, ZERO. Nada. Nilch. The expectation was for a gain of 65K jobs, but not a single one was created.

The good news is that the unemployment rate remained steady at 9.1%, though this is likely because of people dropping out of the labor force. The White House just came out with their own economic projections saying that the unemployment rate would stay above 9% for the rest of the year. No shock there.

Next week we get to hear the President’s ideas for job creation and frankly I couldn’t be less interested. This administration has been a total disaster on the economic front and the US is moving closer to double-dip recession with every passing day of ineffectual political leadership.

Obviously markets have tanked with the exception of gold, as the expectation is that Bernanke and the Fed will attempt to come to the rescue again with QE3. However, the markets aren’t ready just yet to come in to buy on that hope, and we will likely see continued volatility.

Meanwhile, the Dollar tanked right out of the gate against just about everything but the Loonie, though it is gaining strength vs. the currencies deemed “risky” like the Aussie, Kiwi and Euro. The Swiss franc, particularly has been gaining strength.

Oil prices are pulling back despite the threat of a supply disruption from a storm brewing in the Gulf of Mexico, and gold has shot up higher to around $1880.

Not much else matters this morning, and it will be interesting to see if the believe in QE3 can reverse some of this sentiment. My hunch is that we will not see much buying activity here, as we are heading into the long, holiday weekend.

Monday’s holiday is ironically Labor Day. Though it may have to be re-named Non-Labor Day!

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September 1, 2011

Forex Market Outlook 9/1/11

Filed under: Forex News — Tags: account, aussie, australia, course, currency trading, decision, france, interest-rates-, jobs, jpy, kiwi, live, market, ratification — admin @ 6:51 am

Europe’s woes are back to center-stage as the markets fear slowing growth and the political wrangling that is taking place over the proposed EFSF deal agreed to in July. For starters, European PMI figures came in lower than expected across the board in Italy, France, Germany, and the Euro zone overall. In addition, the markets will be watching very closely a court decision in Germany that may determine the constitutionality on Germany’s participation in the bailouts, ahead of the ratification meeting at the end of the month.

But it’s not just the Euro zone that is seeing declines, as PMI figures in the UK declined the most in almost two years to a reading of 49. However this reading matched the expectation so much of its impact has already been absorbed. Adding to further Pound weakness is that home prices also declined by .4% and the expectation was for an increase of .4%. This has put pressure on the Pound and is contributing to early risk aversion in the markets.

Chinese PMI also fell near 30-month lows and export orders fell for the first time in two years so an obvious slowdown in China would further add to the declining global economic growth story. This has put a bit of pressure on both the Kiwi and Aussie, though the Aussie is benefiting from better than expected retail sales figures, posting a gain of .5% vs. a .3% gain.

The Swiss franc is also strengthening as I mentioned yesterday that the SNB “forgot” to jaw-bone the Swissie lower. Today they have reported in-line GDP figures showing .4% economic growth, but early risk aversion is adding to buying pressure.

Later this morning, ISM manufacturing figures will be released here in the US which are expected to show a decline from last month’s 50.9 to today’s expectation of 48.5. The bar is set pretty low for this one so an upside surprise could help redeem the markets. Initial jobless claims came in as expected, with the usual 409K newly unemployed.

The markets are actually creeping higher early in the US session as we are off of earlier lows. We are starting to see a familiar pattern emerge, with risk aversion taking place in the European trading session and then that sentiment reversed in the US session, essentially leaving us near flat for the day.

While the forex markets have been trading in expanded ranges, overall market ranges seem to be contracting. This could change tomorrow, on the release of the Non-Farm Payrolls report. The expectation for job gains is at 75K which is also a pretty low number, so a downward miss could cause initial risk-aversion until the markets realize that this might actually be good for the prospect of “QE3” as the Fed attempts to fulfill its dual-mandate of encouraging employment and price stability.

Should we miss to the upside, then the opposite sentiment could occur though I think that if the number is encouraging then it could help move the markets higher, however more slowly than if QE3 becomes the expectation and not the hope.

Next week will also bring the politicians back to town (yay!) and President Obama will give his jobs speech next Thursday, though the majority of America will probably be watching the start of football, as more and more people become disenchanted with the political games we are forced to endure.

So be careful trading into tomorrow’s NFP report which is always a volatile time in the markets!

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August 30, 2011

Forex Market Outlook 8/30/11

Filed under: Forex News — Tags: a-little-more, china, currency-pairs, eur, euro, greece, interest-rates-, live, markets, not-scheduled, show — admin @ 7:03 am

It’s good to be back in NYC after evacuating for the hurricane. While NYC appears to have fared reasonably well, the same can’t be said of other areas. I hope everyone who was affected by the devastation is able to get back to normal as quickly as possible.

As far as the forex market is concerned, this was nothing more than a minor inconvenience and the show must go on as they say. Markets actually fared surprising well yesterday, as there was major risk appetite in the markets despite a less-than desirable outcome from Bernanke’s speech last Friday. Positive economic news out of Greece was the primary driver, though they are not out of the woods just yet. While some in the marketplace had been hoping for additional monetary stimulus, Monday’s market action suggests that investors are still willing to buy even when there isn’t “free money”.

Yet this morning, we are giving back some of those gains as the focus returns to the Euro zone and the debt crisis they are still facing. The agreement that was reached on July 21^st has not been approved yet and there is speculation in the market that Chancellor Merkel of Germany may not have enough votes to ratify the agreement. The politics in Germany have been an important aspect of the negotiations and the market is cautious to see if Merkel can get the required support.

In the meantime in the Euro zone, confidence figures are back to 2008 lows as the global economic slowdown and accompanying debt crisis have left both businesses and consumers feeling malaise. Most of today’s data is sentiment-related so while it is not a true measure of activity, it could be a harbinger of the global economy down the road.

Business confidence in the UK is also at 2008 lows, as declining growth figures and an uncertain global economic picture aren’t things to inspire cheerfulness.

Later this morning, US consumer confidence figures and home prices figures are expected to come in lower, and the market is preparing for this Friday’s Non-Farm Payrolls report which may be the single most important data point.

Meanwhile, gold just jumped sharply as Fed Governor Evans was speaking with regard to monetary policy and these guys need to realize that their words sometimes have consequences. We are going to learn more from the Fed later this afternoon, as the release of the minutes from the last FOMC meeting is due. The interesting thing about these minutes is that market participants will be looking to see what exactly it was that caused the Fed to change policy and set a specific 2-year target for maintaining interest rate policy from the “extended period” language they had used for some time.

Earlier in the Asian session, the Kiwi was higher as building permits figures came in much better than expected, though it is giving back some gains as risk aversion picks up pace. In Japan, the unemployment rate ticked slightly higher and retail sales figures were lower. In addition, Finance Minister Noda was elected as the next premier of Japan, succeeding Kan.

So there is seemingly a lot happening around the globe, though there isn’t one particular thing that the markets can look to for guidance. I suspect that we are going to see continued range-bound activity with a slightly higher bias. Markets may advance in the US session and early Asian session, but decline in the European session.

Right now the major problem affecting the global economy is the continued Euro debt crisis so the longer this drags out or goes unresolved, the weaker those markets will seem. With interest rates at ridiculously low levels (and staying here in the US for at least 2 years if the Fed has their way), the market will reluctantly buy stocks as there is no other game in town. This may bear the guise of “risk appetite” though it is more likely the case of indifference.

Now if the Fed can just get this to translate to the housing market, they might be on to something. But this is a tough haul, and declining confidence figures may make this a near impossibility. In the meantime, if inflation rears its ugly head then we could be in for a major stagflationary environment.

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August 25, 2011

Forex Market Outlook 8/25/11

Filed under: Forex News — Tags: currencies, currency, currency trading, decision, efsf, eur, extraordinary, fxedu, greece, interest, interest-rates-, new zealand, news, trades, unemployment — admin @ 7:07 am

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August 18, 2011

Forex Market Outlook 8/18/11

Filed under: Forex News — Tags: australia, carry trade, changing-risk, currency market, dollar, fear, inflation, interest-rates-, markets, mike conlon, testing-the-all, unemployment — admin @ 7:04 am

Well it looks like there is some major selling in the global equities markets today as fears of a global slowdown have induced risk-aversion. Gold is back over $1800 and is re-testing the all-time nominal highs, yet the currency market seems fairly tame by comparison.

Part of the reason seems to be the fear of intervention from the safe haven currencies, namely the Swiss franc and the Japanese yen. As markets have sold-off, money has poured into these currencies, as well as gold and US treasuries. The US dollar is strengthening, but also has the dampening effect of the Fed’s policy that they are going to keep rates at these extraordinarily low levels.

The problems in the Euro zone are not going away and the Merkel-Sarkozy meeting did little to assure markets and a lot to disrupt. The idea they floated of imposing a financial transaction tax will most likely cause money to start seeking alternatives as further taxes and regulation inhibit capital formation and not foster it.

Adding to the global economic slowdown story is the UK, who reported declining retail sales figures of -.2% vs. an expectation of a gain of .1%. As a result, stocks in Europe are down some 3%.

The hope that US economic data would save the day have been thwarted as Initial Jobless Claims once again came back in over 400K for the 18^th time in the last 19 weeks. CPI data did not help either, as the expected declines did not materialize and in fact ticked higher, showing that we are most likely heading for a stagflationary environment.

Headline CPI came in showing a gain of .5% vs. an expectation of .2% which kept the YoY headline figure at 3.6%, the same as last month and above the expected 3.3%. This figure can be somewhat confounding to some as the “normal” expectation is that the fed would consider raising rates to combat higher inflation—but Bernanke just told us last week he’s not budging on rates until mid-2013!

With the threat of higher taxes coming from the government and higher inflation (which essentially is a tax on all), it is not surprising that there is not a lot of consumer confidence at this point. Bernanke has essentially painted himself into a corner and the idea that consumers are going to come back is laughable.

Later this morning, existing home sales and the Philly Fed are due out but I can’t see how these data points, even if better than expected, can reverse market sentiment.

Meanwhile, our great leaders here in the US are all vacationing, and I hope it rains wherever they are. President Obama announced that he would release his new plan to create jobs—right after he gets back from vacation! I’m guessing this vexing problem of unemployment and a floundering economy is not going to affect his golf game. Frankly I’m tired of hearing from all of these buffoons in Washington anyway. So perhaps we would all be better off if they all took a permanent vacation!

Today will be interesting to see if the US stock market can reverse, and if the correlative effects carry over to the currency market. The situation looks bleak from a global perspective, so trade cautiously!

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