New Home Sales Shows a Collapse, Income, Spending Came Less than Expected

New Zealand Third Quarter GDP Missed Estimates, Economic Growth Continues

Economy expanded 0.2 percent in the third quarter, Statistics New Zealand reported today at 10:45 local time. The quarterly number missed the average estimate by 0.2 percent. New Zealand dollar fell against the yen and the US dollar after the report though the depreciation was somewhat limited. I made a very small profit by selling the NZDUSD after the news.

Reactions to US Leading Indicators and the Philly Fed Index

Leading indicators in the US rose in November to 0.9 percent, beating analyst estimates by 0.2 percent. Philadelphia Fed index of manufacturing activity also climbed more than expectations, reaching to 20.4 for December from 16.7 in the previous month.

It is worth noting that the Empire Manufacturing index for that month had already showed significantly less improvement than expectations. Furthermore, a report on jobless claims which released earlier that day showed an increase of 7,000 when the market was waiting for 8,000 decline.

Following charts show the reactions to the news.

UK Retail Sales Disappoints Market

A 0.3 percent decline in November retail sales completely disappointed the market which was looking for a 0.6 percent increase.

Pound depreciated against the dollar and the yen, in a day that the sentiment in financial markets was battered by ongoing concerns about the credit quality of some countries, especially Greece which its rating downgrade raised questions about the economic healthiness of the euro-area. However - and with all the regrets! - I take my profit by selling the pound against the dollar after the report.

UK Jobless Claims Unexpectedly Fell in November

On December 16, employment data from the UK surprised the market. Jobless claims unexpectedly fell by 6,000 when analysts were waiting for more than 12,000 increase. It was the first decline since February. Unemployment rate however rose to 7.9 percent, in line with expectations. Sterling appreciated in response and I managed to take profit by buying the pound against the dollar just minutes after the report.

Australian GDP Missed Average Estimates

On December 16, a report showed that Australian gross domestic product rose just 0.2 percent in the third quarter, after 0.6 percent in the previous three months. The GDP figure missed the average analysts’ estimate by 0.2 percent. I sold the Aussie against the dollar and the yen just after the report and both positions resulted in profit.

Quotes of the Day

“You will find during times of uncertainty, such as the early 1980s, the Russian crisis or Sept. 11, the bond market becomes very ineffective because investors can disappear overnight”, said Julian van Kan, an analyst from the BNP in London, highlighting the concerns about the difficulties companies have to get loan. (Source: Bloomberg)

Making 99 pips of profit from the falling Gold

US Advance Retail Sales and the University of Michigan index of consumer sentiment both rose more than estimates. Dollar rose and gold fell in response to the news and I managed to make 99 pips of profit by selling gold after the retail sales report.

Quotes of the Day

“The surprise will not be in the raw numbers, but rather in the composition of growth, which will be transformed forever by companies and industries that probably didn’t even exist in 2009,” economist Joseph G. Carson said, suggesting that it may be not the end for the US economy to grow above the 3 percent annual rate. His view is in contrast with some economists and analysts who expect low growth rates, around 2 percent, for years ahead and see it as a “new normal” for the economy.

RBA Raise the Cash Rate, Reduces the Expectations

The Reserve Bank of Australia (RBA) decided to raise the cash rate by 25 basis points to 3.50 percent. Australia was the first major economy that decided to reverse some of its accommodative actions and today’s decision is for the second consecutive month that the central bank raises the borrowing cost. Although the market believes that more increases are still on the horizon but the statement from the bank reduced the expectations, saying that the higher rates would come “gradually”.

The charts below show the market reactions in the two rate decision meetings, today and the October 8.

Reserve Bank of Australia (RBA) Rate Decision on November 3 - 0.25 increase.

Reserve Bank of Australia (RBA) Rate Decision on October 8 - 0.25 increase.

Quotes of the Day

“Whenever you have everybody on the same side of the boat, you know what you have to do”, Jim Rogers said, referring to the recent decline in the stock prices and the appreciation of the U.S. dollar.

US GDP and the Forex Market’s Behavior: A Technical Case

Today’s report from the Commerce Department showed that the US Economy, the world’s largest, expanded at a 3.5 percent annual rate in the third quarter.

In recent days and ahead of the report, the sentiment in financial markets was relatively negative as the growing pessimism about the prospect for a sustainable economic growth, especially when the central bankers and policymakers finally start to unwind their stimulus measures, cast its shadow and negatively affected the investors’ confidence.

As the charts show, the yen was rising against the dollar in that period, and it was when the de-leveraging process was generally working in other parts of the markets.

At the same time, and if you wanted to bet on a possible turnaround based on good news from the GDP report, it seems that there were some signals and opportunities. Look at the daily chart, where the USDJPY hit the 26-day moving average – the blue line - which is also the intraday low at the support line (90.22 in the 15-minutes chart).

In addition, the charts below show that the leveraging process was dominant after the GDP report, causing the dollar to depreciate against the higher-yielding currencies.

The Bank of Canada Rate Decision: Loonie Tumbles on the Comments

The Canadian dollar touched the lowest level since Oct. 9 after policy makers said in a statement its strength will “more than fully offset” recent signs of economic growth in the nation. (Source: Bloomberg.com)

Quotes of the Day

“As Napoleon said, if you’re going to take Vienna, take Vienna”. It was quoted from a Republican strategist, highlighting Obama’s failure to secure the selection of Chicago for the Olympics summer games in 2016.

Update: US Employment Report

(comments to be added)

Quotes of the Day

“On G-7 meeting weekends now I go fishing, no reporters call and writing up summaries of the G-7 for the most part is pointless as there is no news”, an analyst wrote to clients. The G-7 is expected today to be replaced by the G-20 as the main forum for global economic cooperation.

Quotes of the Day

“A currency, which the country’s own central bank likes to see weak, obviously is not an attractive investment,” a currency analyst said after a comment from Mervyn King, the Bank of England governor, caused the pound to depreciate almost 2 percent against the dollar. The comment showed that the policymakers see the a weaker pound “very helpful” in rebalancing the U.K. economy.

50 pips Profit on FOMC Statement

The FOMC announcement showed that the policymakers are starting to think about the possible options in order to wind down the accommodative measures when the economy resumes its growth. Referring to the purchases of mortgage-backed securities and housing-agency bonds, the Fed said that it “will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010”.

Stocks dropped and treasuries rose in response to the decision and it was when I decided to bet on rising risk-aversion by buying the yen. I sold eurjpy and the trade finally resulted in 50 pips of profit in almost 6 hours. The following charts show the market reactions.

Quotes of the Day

“One should always start to be concerned about inflation when you get a weakening currency, rising commodity prices, and rising gold prices,” an economist said before the FOMC decision when the committee’s statement was expected to show that they are less concerned about inflation, counting on the weak recovery and rising unemployment.

New Zealand’s Economy Surprises the Markets

An economic report showed that New Zealand’s GDP surprisingly turned positive in the second quarter (on the quarterly basis). Another report this weak also showed that the current account deficit, as a percentage of the GDP, dropped to 5.9 percent, well below the 7.4 percent which was the average estimates. New Zealand dollar appreciated in both cases. The following carts show the reactions from the Forex market.

Quotes of the Day

“There is an enormous black hole in the public finances which only major spending cuts can fill.” An economist said after a report showed that the budget deficit in Britain widened to a worrying level as the recession continues to reduce the spending power of Labor government by destroying the tax revenue.

Quotes of the Day

“There needs to be an array of numbers but we need to understand the role of each number. We may not be able to aggregate everything together.”, Joseph Stiglitz, the Nobel Prize-winning economist said, reminding the weakness of the GDP figures in assessing the wealth and the well-being of societies, specifically by not including some challenging issues such as the climate change, environmental sustainability, or the role of national debt in exaggerating the GDP number.

“Ripping the stimulus out prematurely would only pull the rug out from under the recovery, undermine confidence and threaten jobs.”, Australia’s Treasurer Wayne Swan said in a weekly economic note. In recent days, policymakers around the world have showed their concerns that it may still be too soon for cutting back in stimulus efforts.

Quotes of the Day

“The system is essentially unchanged, except that post-Lehman, the survivors have ‘too big to fail’ tattooed on their chests.” , Niall Ferguson said, when the author of “The Ascent Monday” was pointing to the fact that the current regulatory structure could lead to another “Lehman Monday”, referring to the aftermath of the Lehman Brothers bankruptcy on September 15, 2008.

Quotes of the Day

“The classic mistake people make is they declare victory too soon”, U.S. Treasury Secretary Timothy Geithner told to a Congressional panel when he was suggesting that some of the measures, introduced to restore stability to the system, are still needed to be in place.

Bank of England Avoids Expanding its Purchases

The Bank of England (BOE) decided to keep the size of its assets purchase unchanged. Pounds rose against the Euro and the US dollar after the bank announced its decision as it was in contrast with some analysts’ expectation who suggested the possibility of 25 billion pounds increase. The following charts show the market reaction to the decision.

Forex Responses to Australian Employment Change

Australian employers cut 15000 jobs in August. Aussie depreciated in response to the report. The following chart shows the market reaction.

Aussie Reaction to the Retail Sales Report

Australian retail sales fell 1.0 percent in July, a report on Wednesday showed. The average estimate was for a 0.5 percent increase and the market reacted negatively to the unexpected drop.

Another report showed a more than expected decline in home loans. Both reports caused the market to reduce its expectation for higher interest rates by the RBA. The chart below depicts the reaction from the Australian dollar to the news in early Asian markets.