GBP looks strong
Following the alarming drop in existing homes sales figures for the US, as released on Tuesday, yesterday saw more dismal US economic data with both durable goods orders and new home sales disappointing markets. Overall new orders for durable goods rose by a modest 0.3% in July. Drilling further into the figures reveals more however – within this was a 76% increase in orders for commercial aircraft. The market’s disappointment was in the implication being that, excluding orders for such volatile, illiquid machinery, order’s fell by 3.8% in July, the largest monthly decline since January 2009 when global confidence really was at its lowest ebb. With durable goods orders a good lead indicator of manufacturing output, it looks as if the recovery in the manufacturing sector, which had been one of the main factors driving the economy forward, is running out of steam.
This news accompanied more bad news on the housing front. New home sales fell by 12.4% in July, with June’s figures also revised downwards. This leaves July’s sales at their slowest pace since the data series was first published in 1963. Oddly, this resulted in some erosion off the Yen’s safe haven status as stocks traded higher – a reversal on Wall St as bargain hunters saw the data as an opportunity to buy. The Dollar is also on the back foot. With the list of disappointing data growing longer and longer over the last month, the prospect of further QE from the Fed looms ever larger.
Improved risk sentiment has helped pull Sterling higher against both the Euro and Dollar. With little new on the domestic front, Sterling is prey to swings in risk sentiment further afield, though today will see the CBI’s distributive trades survey and markets will be hoping for a continuation of the recent firm trend in retail sales. US markets will be looking to a speech from Ben Bernanke, the Fed chairman, as well as today’s initial jobless claims data. Bernanke is expected to provide further details on how the Fed would react to any continued slowdown in the US economy, and what shape any QE would take. The greenback could therefore struggle to maintain any gains seen this morning. Meanwhile, the FTSE remains close to its pivotal 5,000 level and could easily trade either side of that line given that ‘super Thursday’ today sees results from around 70 companies.
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