2009-08-19

ForexCT Market Report – 19 August 2009

Currencies Rebound on Strong UK & Euro Data…..

Pound Leads the Charge:  Currencies rebounded against the US dollar overnight as markets were buoyed by strong inflation data out of the UK and much better than expected investor sentiment data out of Europe.  The pound has been the biggest mover over recent months and it once again led the charge higher.  Cable recovered more than 300 pips from Tuesday's low to an overnight high at 1.6585 before closing the New York session at 1.6550.  The euro put in a more muted effort, recovering about 100 pips from Tuesday's low before settling at 1.4135 towards the New York close.  The Aussie dollar was well supported by an increase in the appetite for risk and received an additional boost from the news about the $50 billion contract for liquefied natural gas with China.  The Aussie recovered about 100 pips from Tuesday's low to close in New York at 0.8260 and strong buying this morning has pushed the market still higher.

UK Inflation Shows Surprising Resilience:  The Office for National Statistics said inflation in the UK remained steady in July from June, surprising economists who had expected another fall in prices.  Consumer prices were unchanged, keeping the CPI at an annual rate of 1.8 percent.  Analysts had expected a further easing below the Bank of England's 2 percent target rate for inflation with the median forecast at 1.6 percent.  The latest figures led some analysts to believe that the Monetary Policy Committee may raise interest rates earlier than previously estimated and the pound rallied in response.  The wider Retail Prices Index (RPI) inflation measure, which includes mortgage interest payments, also showed unexpected resilience.  The RPI rose from -1.6 percent in June to -1.4 percent in July against expectations of an annual -1.7% percent change in prices.  Chancellor of the Exchequor Alistair Darling poured cold water on expectations for a rise in interest rates.  "I think you're still to see the full effects of reduce gas and electricity prices," he told the BBC.  "If you look at all the numbers we've seen of the past few months, they are consistent with an economy that's coming through a pretty severe downturn."

Investor Sentiment Rises Sharply:  Survey results showed that investor sentiment has risen sharply in Germany and Europe.  Mannheim-based economic think-tank ZEW said its economic sentiment index of investor and analyst expectations in Germany rose from 39.5 in July to 56.1 in August, smashing expectations for a measure of 45.2.  The index is compiled via a survey of about 350 German institutional investors and analysts with questions on the relative six-month outlook for the German economy.  A similar survey is conducted with the same German institutions regarding the outlook for the wider European economy and the resultant index for the euro zone climbed from 39.5 in July to 54.9 in August.  "Positive growth figures for German gross domestic product (GDP) in the second quarter have improved financial experts' assessments of economic conditions," the ZEW said.  "Another rise in industrial orders and exports growing again are brightening Germany's economic prospects.  As a result, business expectations for all sectors, in particular for exporters, have noticeably improved."

US Housing Starts Decline, Producer Prices Lower:  The US Commerce Department said new housing starts and building permits unexpectedly fell in July, dragged lower by a steep decline in the building of multi-family apartment units.  Housing starts fell from an upwardly revised 587,000 in June to a seasonally adjusted annual rate of 581,000 in July, disappointing analysts who had expected 598,000.  New building permits fell to 560,000 in July, worse than estimates of 580,000.  Meanwhile, the US Department of Labour said the price of goods and services sold by producers fell by 0.9 percent in July after rising by 1.8 percent in June.  Excess production capacity and lower costs show that inflation will not be an immediate concern for the Federal Reserve, allowing the central bank to maintain an easy monetary policy by keeping interest rates at record low levels.

Exxon Mobil and China Sign Massive Australian Gas Deal:  Australia and China have signed their biggest trade deal in history after global oil giant Exxon Mobil and PetroChina agreed on a deal for US$41 billion in liquefied natural gas.  The deal almost certainly ensures that the Gorgon LNG project, located off the coast of Western Australia, will go ahead.  The much delayed project will now probably get investment approval as early as next month and the building project will be the biggest in Australian history, employing as many as 6,000 workers at the peak of construction.

Stock Markets Regain Some of Their Losses:  European equity markets jumped out of the gate with gusto following the better than expected European sentiment data and stronger consumer prices in the UK.  Investors were also encouraged after China's stock market stopped its plummet with the Shanghai Composite Index gaining 1.4% at the close after opening weaker.  European markets suffered a hiccup after the release of weaker than expected US housing data but recovered towards the European close.  Better than expected earnings from US retail giant Home Depot led the drive higher on Wall Street.

Overnight Equity Market Scoreboard:

Economic Releases for Today:

Glenn Kuppe
Senior Analyst
Forex Capital Trading Pty Ltd
AFS Licence 306400

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