Saturday, September 4, 2010

Forex Market Updates & Commentary

Forex Market Updates & Commentary

Link to Forex News and Commentary by FXDD

The Weekend Technical Commentary is available for viewing

Posted: 03 Sep 2010 12:47 PM PDT

 

In the weekend technical commentary I will take a look a the major currency pairs from the perspective of the daily charts and the hourly charts.  The unemployment data today did little to move the currency pairs outside their comfort zones (see video) and therefore puts off a trend type move until next week when traders are thought to be back at their desks from summer holiday, and the push over the last four months of the year begins.  We will see.

New Zealand Earthquake

Posted: 03 Sep 2010 09:47 AM PDT

As reported by Thompson-Reuters there has been a 7.3(On the Richter Scale) Magnitude Earthquake that has hit South Island, New Zealand.

Fed’s Lockhart comments on the newswires. Are comments credible or simply pie in the sky?

Posted: 03 Sep 2010 09:25 AM PDT

  • US Unemployment to come down slowly
  • 5.5% to 6% realistic Long term target but will be a while
  • No appetite in Fed to monetize Federal deficit
  • Uncertainty a major factor in Business and Consumer
  • Admin/Congress must agree on fiscalgame plan
  • World will calm down with credible fiscal plan.

The comments made by Lockhart look great on paper but what are the realities of the ideas. 

fxdd_reg_pic0496

The markets applauded the better than expected Employment report .  Stocks opened up 100 points and it looks like a gain will be sustained.  The 9.6% unemployment rate, the NFP job loss for both headline and Private Sector jobs, the revisions were all better than expectations.  

However, historically, when employment starts to come down, there is a sharper move down in the rate as the economy recovers from the low.  We are not seeing that at all.

  • In 1982 when the unemployment rate peaked at 10.8% in December, 10 months later the employment rate was down 2% to 8.8% or 18.51% lower.  One year later the rate was down to 8.3%.  18 months later the rate was down to 7.2% — 3.4% lower than the peak.
  • In 1975 the rate peaked at 9.0% in May of 1975.  10 months later the rate was down to 7.6%.  The  decline equaled a 15.55% percentage decline from the peak. 
  • In 1992 the Unemployment Rate peaked at 7.8% in June 1992.  10 months later the rate was down to 7.0% or 0.8%.  Although less of decline than 1982 and 1975, the fall on a percentage basis was still a respectable 10.25%.
  • In 2003 the Unemployment Rate peaked at 6.3%.  10 months later the price reached 5.6% or 0.7% from the peak.  The decline represented a 11.11% decline from the peak.
  • In the current cycle the Unemployment Rate has moved from 10.1% in October 2009 and 10 months later the rate is down only 0.5%.  The percentage decline from the peak has been a scant 4.95%.  Since January of this year, the rate is down from 9.7% to 9.6% - only 0.1%.  That is not exactly zipping along.  Moreover, expectations of a sharper fall are not in the minds of the market economists nor the Fed which projects an end of year rate of 9.2%-9.5%.

The move to 6%, as suggested by Lockhart, would imply a percentage fall of 40.5% .  It took 52 months to do that in 1982 or 4 years and 4 months.  In the 1975, the percentage  fall never reached 40.5%.  In 1992 it took 66 months - or 5 1/2 years - to have the rate fall 40.5%.  In 2003, the rate did not fall 40.5%.

With the small fall to date, the record of 66 months seems like a good bet to beaten. 56 more months to go!

Looking at the FRB’s own estimate, it sees the Unemployment Rate falling to 8.3%-8.7% in 2011.  A move to the best case scenario of 8.3% would imply a fall of 17.82% from the peak of 10.1%. 

In 1982 it took 10 months to lose that percentage (to 8.8%).  We are currently at 10 months now and at the end of 2011, we will be  26 months into the “recovery”.  At the 26th month in 1982, the rate was down to 7.2% from a higher peak of 10.8%.  An equivalent % move (33% decline) should have the current rate down to 6.7% by the end of 2011! 

By the Fed’s best scenario, the rate of 8.3% will be a full 1.6% higher than the 1982 equivalent (8.3% vs 6.7% or 1.6%).

The first 26th months are supposed to be the fast decline years as bounce back growth leads to bounce back employment.  Assuming all things go well, the 6% unemployment rate will take 5 plus years from now to reach.  That is to get to the new full employment level. Oh by the way 6.3% was the highest rate going back to May 1994.

Is Washington going to come through?

Lockhart talks about help from Washington.  He says a fiscal game plan needs to be decided.  Yet today, Obama has a press conference blaming the Republicans for holding up a small business relief plan.  Does it really seem feasible that there will be any cooperation from a political front as the November elections approach?   Will not every election from now until 6% employment not be a  challenge as the elected worry about their political future.  Will qualified replacements even want to aspire for a career in Washington serving for the good of the country? Can we count on Washington?  Not if politics is involved we can’t and unfortunately, the cooperative efforts during the bleak days of the nations history has turned to a inherent disdain for each other with plenty of finger pointing and not much hand holding.  The political future is at stake versus the countries future is at stake now.

Consumer Confidence.

There is talk that housing is becoming less of a factor.  Homebuilding is down.  Cash is being saved by the builders.  Jobs have already been eliminated.  That is one story that has played out. However, the side that involves price and consumer wealth is still in play and this can continue to send ripples through the economy for a while to come.  

As a result, the housing market, in my mind remains a key for the economic health of the consumer and the economy. 

Despite the Pending Home Sales rebound this week, the Existing and New Home Sales will need to see a corresponding increases in coming months and then some. Looking at the historical data, the Existing Home Sales plunged to an annualized rate of 3.83 million units. The tax credit excuse to me says home price have been artificially supported and need to come down to that value at the very least - immediately.   If home prices are reluctant to come down - and homeowners are still hoping for a rebound or for their home to be the one chosen - the time simply adds more supply on the market.  More supply begets lower prices and home inflation increases. 

fxdd_reg_pic0502

The fall in the annualized sales pace raised the month supply of homes to a record 12.5 months.  With slower sales it takes more months to get rid of the supply.  This number may be overstated if the sales pace rebounds with no corresponding increase in supply.  One would think that the lower mortgage rates should increase demand.  However with the increase in treasury rates which saw the 10 year yield from 2.47% to 2.70% this week, will there be a corresponding increase in mortgage rates?

fxdd_reg_pic0499

However with the increase in treasury rates which saw the 10 year yield from 2.47% to 2.70% this week, will there be a corresponding increase in mortgage rates?

fxdd_reg_pic0504

Meanwhile with regard to home prices, the asset which provided stability and growth is now down 15 to 20% from the peak.  To make matters worse, the working homeowner has been replaced by the not working homeowner who now owns less equity.

fxdd_reg_pic0503

The combination has led to the surge in Foreclosures to 4.5%.  The last quarter saw a small decline, but there are thoughts the number will get worse before it gets better - especially if unemployment remains elevated for an extended period of time.

fxdd_reg_pic0501

Deliquencies are also a threat to foreclosures and they remain at close to 10%.   Delinquent loans turn into foreclosed properties.   Something has to give as the picture remains bleak.

fxdd_reg_pic0500

High unemployment is a deterent to consumer confidence.  High employment and a sick housing market prevents people from moving from those areas where jobs are less plentiful to places where jobs are more plentiful (if that exists). Lower home price and  higher foreclosures make the homeowner who is employed have a sick feeling as well.  It is no fun watching foreclosed properties or short sales go through at distressed level. 

 There is also anecdotal stories on how IRA redemption’s are also up as consumers tap retirement funds to pay bills.  If the stock market suffers, wealth loss from this increasing source of working capital, will be depleted as well.  A rebound in consumer confidence would be nice, but is it realistic?  Solve employment. Solve housing, and there may be a chance.

Business Confidence

Businesses may indeed be a bright spot . They have shed jobs, made employees do more, have a 9.6% unemployment rate to keep unrest quelled and are sitting on cash that now allows more and more mergers and acquisitions?  How does that play out?  What happens when the two companies merge to the employees? Do they keep their jobs or are their redundencies that continue to hurt employment?   

If  employment remains high for an even more extended time period, there is always that possibility of a consumer spending hiatus that cannot be offset by efficiency gains anymore so earnings could suffer.

At the moment, things are ok.  Earnings are good, employees are happy to have a job, but it could be the employees who could pull the plug in the long run.

GBPUSD trades between the Goal Posts as the week heads to the close

Posted: 03 Sep 2010 07:40 AM PDT
Posted by at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)