Forex Market Outlook 9/29/11
This morning, all eyes were on Germany which voted to expand the scope of the EFSF, laying the groundwork for the Greek bailout to continue and effectively buying more time for EU leaders to figure out a plan to resolve the crisis.
This has been dragging on the global economy for some time now and has discouraged investment and capital formation from taking place. And while this vote is not the end all be all and just one vote in series of others that need to take place, leaders are hopeful that the EFSF can be ratified by mid-October.
So to turn our focus away from the debt crisis for a moment, there was actually some economic data that came out today that surprisingly shows a bit of economic resilience. In Germany, unemployment figures fell by 26K vs. the expectation of a decline of 8K which helped push the German unemployment rate down to 6.9% from last month's 7%. And while five different measures of Euro zone confidence all came in worse than expected, it must be noted that things typically need to get better before business and consumers start believing.
Here in the US initial jobless claims came in better than expected, with 390K newly unemployed vs. the expected 420K. While not a dramatic turn-around, at least it halts the declining figures we have seen of late.
US GDP Annualized figures came in slightly better than expected showing a gain of 1.3% vs. the expectation of 1.2%. The GDP price index also came in a higher than expected, showing a gain of 2.5% vs. 2.4% which means that inflation is steady to rising slightly. Personal consumption figures also came in better than expected, posting a gain of .7% vs. .4%. This perhaps might be the most positive reading, as the US economy needs the consumer to come back in order for it to flourish. Though this could also be a function of the "back to school" phenomenon.
Later this morning we will get pending home sales which if improved, could round out a pretty positive morning for the US economy in light of recent events. August home sales were expected to have declined 2.1%.
In the UK, mortgage approvals came in better than expected with 52.4K approvals vs. the expected 49.7K. This is either a result of improved sentiment or the fear of inflation but either way it is producing positive economic activity. The UK sometimes gets lost in the shuffle when we look at the problems in the Euro zone.
The markets are rallying this morning as risk appetite has improved on the German vote as well as the better than expected economic data. But the markets are still pretty range-bound at the moment, so we are seeing cases of "buy the rumor, sell the news". The Euro was actually higher earlier this morning before the vote as the anticipation of it passing held more promise than the actual vote itself.
Even with this vote passed, the problems are far from over and the market can turn quickly if it loses confidence in the EU resolve to save the union. The global economy has not recovered just yet, even though there is some decent economic data. In fact, estimates are calling for a slowdown in China, who reports PMI figures tomorrow.
So don't be fooled into believing that everything is peachy-keen just yet, as the global economy still has a long way to go.
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