Wednesday, January 10, 2007


US Housing To Dim Global Economy

The Associated Press reports on the US dollar and world economy. "An expected dampening of the world economy in 2007 after three years of healthy growth has the weakening U.S. housing market primarily to blame, a U.N. flagship economic report released Wednesday said. The World Economic Situation and Prospects 2007 predicts a reduction of world economic growth to 3.2 percent this year, from the all-time high of 4 percent in 2005 and an estimated 3.8 percent in 2006."

"The waning U.S. housing market is a 'major factor' in the slackening economic prospects, the report said. The end of the housing boom is expected to depress U.S. consumer demand, slowing the growth of the country's economy to 2.2 percent this year, it said. 'The economic recovery in Japan and Europe is not strong enough to replace the U.S. as the engine for growth of the world economy,' the report said."

"A continued widening of the U.S. deficit could erode 'confidence in the dollar as the world's main reserve currency,' the report warned."

"The U.N. report also warned that if the U.S. housing market falls at a dramatic rate, the global economy could become unhinged, 'enhancing the risk of a major upheaval in financial markets.'"

From Bloomberg. "New Zealand's dollar may fall as investors bet an unexpected narrowing of the U.S. trade deficit might decrease demand for the nation's exports. The U.S. trade gap, the amount by which imports exceed exports, shrunk in November to its lowest since July 2005. It is New Zealand's second-largest export market after Australia."

"'A firmer U.S. dollar weighs on the kiwi,' Marc Chandler, chief currency strategist at Brown Brothers Harriman and Co. in New York, said. 'The U.S. dollar has experienced a very strong rally, helped by a smaller than expected trade deficit.'"

"The U.S. dollar rose to its highest in three months against the yen and its strongest in six months against the euro as investors bought the currency as the trade deficit narrowed to $58.2 billion in November from $58.8 billion in October. A smaller trade gap indicates fewer dollars must be converted to foreign currencies to pay for imports."

"Still, Chandler said that plans to increase the number of U.S. troops in Iraq could weigh on the U.S. dollar and provide support to New Zealand's currency. 'By committing more troops to Iraq it will increase spending and the U.S. budget deficit, and that will be dollar negative,' Chandler said. 'The U.S. dollar's rally is over for now and market participants are likely to turn their attention back to high-yielding currencies like the kiwi.'"

From MarketWatch. "Gold futures closed lower Wednesday, reflecting weakness in crude prices and trading inversely with strength in the U.S. dollar as traders gauged investment demand for the precious metal. 'Gold's ability to hold above $600 over the past couple of days has improved the metals technical outlook, with the metal now in the process of establishing a base at $605,' said James Moore, an analyst at"

"Gold for February delivery closed down $1.60 at $613.40 an ounce on the New York Mercantile Exchange -- a partial recovery from the day's low of $607."

"The metal came under renewed pressure Wednesday on the heels of a fourth-weekly rise in U.S. distillate and gasoline inventories. Oil has lost more than % of its value since the beginning of the year, pressuring the broader commodity markets. Despite the weakness in gold Wednesday, 'gold looks safer today than it has looked for the past several days,' Dennis Gartman said in his Gartman Letter."

"The fact that spot prices fell to $605 on Tuesday but then held firm and rallied back to the $616 level made it look 'as if the selling was done and had perhaps been overdone.' 'If spot gold can hold at or near the $610-$612 level for several more hours...even perhaps for a day or two...we'll be far more certain that the lows have been seen; that the liquidation has run its course and that the worst is behind us,' he said."

"But Jon Nadler, an analyst at bullion dealers said the technical picture for the yellow metal has not improved at this time. 'Reports suggest good buying from physical consumers, [but] the trading pattern remains nervous and disappointing,' he said."

"Other metals prices were mixed. March silver futures fell by 15 cents to close at $12.445 an ounce, and March palladium fell by 65 cents to finish at $330.90 an ounce, while April platinum added $23.10 to close at $1,156.80 an ounce."

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