Friday, March 24, 2006

 

Housing Data Knocks The US Dollar

Some currency news. "The dollar tumbled on Friday after a weaker-than-expected U.S. new home sales report pared back expectations for further greenback-boosting Federal Reserve interest rate hikes. The housing data trimmed the U.S. currency's robust weekly gains, but the euro was still down about a cent and a half against the dollar from $1.2189 last Friday, with the dollar holding within recent ranges."

"The dollar had started the day higher but first stumbled after a report showed weakness in a key measure of U.S. business investment. The currency had been gaining all week, underpinned by an earlier perception that the Fed would keep raising rates beyond an expected hike to 4.75 percent next week."

"Against the yen, the dollar was down 0.4 percent to 117.46 yen. Against the Swiss franc, the dollar was down 0.5 percent at 1.3095 francs. Sterling was up 0.4 percent at $1.7425."

"The housing report also 'highlights the notion that February existing home sales were a fluke, an aberration. The market overall is going to maintain the view of an overall slowing in the housing market,' Dolan added."

"Some analysts downplayed the new home sales' report's potential effect on Fed policy. 'New home sales only represents 20 percent of the inventory. We don't think that this number, while worse than expected, is going to affect Fed sentiment at all, or their statement after their highly anticipated rate hike next week,' said Matt Kassel, head of FX strategy at IDEAglobal in New York."

And some news on Mexico. "Mexico's central bank pushed interest rates a quarter percentage point lower on Friday to boost the economy but it said further cuts will depend on inflation trends and external conditions. The central bank said in a statement that it would allow the key overnight lending rate to fall another 25 basis points to 7.25 percent. The rate stood at 9.75 percent when the bank started easing monetary policy in August. Mexico's peso currency gained 0.35 percent to 10.859 against the dollar after the central bank's policy statement."

"Markets are as concerned about how much further the U.S. Federal Reserve will raise interest rates as about how much Mexico's central bank will cut them. If both central banks continue to move in opposite directions, analysts say interest in relatively high-yielding Mexican local bonds will eventually wane as spreads compress."

"Consumer prices rose much less than expected in the first half of March as fruit and vegetable prices tumbled, but core inflation was slightly above analysts' consensus forecast as prices of services rose."

"Mexico's economy has picked up in recent months on climbing manufacturing exports, especially from the auto industry. The central bank said the economy would grow about 5 percent in the first quarter of this year compared to the first quarter in 2005, and about 3.7 percent in all of 2006."

Comments:
Here's an interesting story.

'Global corporate credit quality is starting to show signs of cracking. Standard & Poor's says in a new report that the number of companies at risk for potential credit rating downgrades jumped to a high of 659 in mid-March, compared with 636 in mid-February.'

'More Downgrades Coming
The number of companies at risk for downgrades is on the rise, says Standard & Poor's.
Stephen Taub, CFO.com
March 24, 2006

Global corporate credit quality is starting to show signs of cracking.

Standard & Poor's says in a new report that the number of companies at risk for potential credit rating downgrades jumped to a high of 659 in mid-March, compared with 636 in mid-February.'

'This number represents the highest level since the rating agency began preparing this report last September. Nearly 86 percent of those at risk of downgrades were located either in the U.S. or Europe, with the the telecommunications and automotive sectors facing the greatest likelihood of downgrades.'

'The rating agency reports that many of the companies vulnerable to a downgrade were in the consumer discretionary domain — telecommunications, automotive, retail/restaurants and health care — where pressures have been building from growing consumer debt, uncertainty about the housing market, and high energy prices.'

'Indeed, in many of these sectors at risk of potential downgrades, the proportion of issuers listed with a negative bias (that is, a negative outlook or ratings on CreditWatch with negative implications) are currently at more elevated levels than have historically been recorded, highlighting the risks to credit quality,' says Diane Vazza, managing director and head of Standard & Poor's Global Fixed Income Research, in a press release.'
 
One of Al's last and most interesting statements keeps ringing in my head...

"...history has not dealt kindly with the aftermath of protracted periods of low-risk premiums."
 
OT- congrats those long on gold!

Nice gain today, and gold is ready to move to the next level IMHO...$580-$585

I'm kicking myself in the ass a little bit because I got one of my gut feelings last night and really wanted to go long again, but my trading account was short. I'll be back in Monday...gold will not drop below $500 again.

PS - can blogger.com make their 'word verification' anty harder to read?? LOL
 
EDIT above post: Gold will not drop below $550 again.
 
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