Economic Insights
US manufacturing contracts again
The US Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) in July has increased modestly to 49.8 from 49.7 in June. However it still stands at the contraction zone below 50.
Among all the components, new orders grew to 48 from previous 47.8. Export remains weaker declining to 46.5 from 47.5 in June. Stronger new orders and weaker export imply the stronger domestic demand than the external.
Source: Bloomberg Click the image to enlarge
Fewer jobs created according to US Automatic Data Processing (ADP) survey
The ADP paints a similar picture. July’s ADP employment was expanded by 163,000, lower than the previous 172,000. From the chart below, you can see that the lag is mainly from the larger firms that are more sensitive to the external environment such as the lower demand from China and the Euro Zone’s prolonged crisis, in which the small and medium enterprises’ (SME) jobs market strongly outperformed the multinational companies (MNC) due to more domestic business focused and more service-oriented activities.
Source: Bloomberg Click the image to enlargeSame script released in Federal Open Market Committee (FOMC) meeting
The Federal Reserve (Fed) recycled their script in almost every public speech and announcement. It’s not an exception for the FOMC too. The FOMC statement expressed that the “economic activity has decelerated somewhat over the first half of this year and the committee will closely monitor incoming information on the economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustain the improvement in labour market conditions in a price stability context.”
After the statement was released, the Dow Jones Industrial Average (DJIA) and Gold started the sell-off mode because the quantitative easing (QE3) hope faded again because it wasn’t a good story for the “pro QE” supporters. The Dollar Index (DYX) broke the 83 resistance immediately.
Source: Bloomberg Click the image to enlarge
The US Non-Farm Payrolls (NFP) to be released this Friday will be one of the most crucial elements to decide the fate of the DXY in the coming weeks; the benchmark line will be 100k.
In a political point of view approach, September may be the last month this year for Fed to launch a more aggressive monetary policy because the US election will be held in November. Regardless the condition of the economy, unless it moves into an extreme manner which is very unlikely, the chance for large scale of asset purchasing by the Fed in October and November is near to zero. Thus, no more key event for traders to speculate on the Fed’s Open Market Operations (OMO) in September besides the NFP. Should you see the figure well below, the US dollar might sell-off sharply, together with a possibly bolder action from “Super” Mario Draghi tonight. If the outcome is upbeat, then risk appetite will decide the direction.
Risk of European Central Bank (ECB) disappointment does exist tonight
Draghi has put his words on the table last Thursday that the ECB would do anything to preserve the Euro and it would be enough. The biggest barrier now is from the Bundesbank President Jens Weidmann but he still looks like having some reserve on large scale asset purchasing, which means there will be some compromise to be done before the ECB cheers on the market and bolsters the bonds in the currency bloc. Putting aside other considerations by Weidmann such as the line between fiscal and monetary policies, he will definitely try to avoid his credibility from being affected by a “180-degree” shift. Draghi is also unlikely to put Weidmann at the corner of a boxing arena when he stressed on the sound relationship between them.
If there is no “real action” tonight from the ECB, the scenario will not only be ugly and Draghi has all the fingers pointing at him, but that will also affect his own credibility. However, I think the possibility will be less than 30 per cent. When Peter Cook interviewed Timothy Geithner, the US Treasury Secretary stressed that the “Euro Zone crisis” will be a more significant risk than the “fiscal cliff”. He also mentioned that there might be some bolder actions from the central banks in Europe but it will take time to solve the entire problems.
The Euro Zone is suffering all kind of economic crisis at this time, such as extremely slow manufacturing activities, record high unemployment rate, lower demand for loans, high borrowing cost, etc.
With the low loan demand, the market will disappoint once again if there is only a rate cut tonight because lower interest rate does not really help if the real demand is low. Based on the chart below, the credit demand for the ECB has deteriorated in the Q2 2012.
The US Non-Farm Payrolls (NFP) to be released this Friday will be one of the most crucial elements to decide the fate of the DXY in the coming weeks; the benchmark line will be 100k.
In a political point of view approach, September may be the last month this year for Fed to launch a more aggressive monetary policy because the US election will be held in November. Regardless the condition of the economy, unless it moves into an extreme manner which is very unlikely, the chance for large scale of asset purchasing by the Fed in October and November is near to zero. Thus, no more key event for traders to speculate on the Fed’s Open Market Operations (OMO) in September besides the NFP. Should you see the figure well below, the US dollar might sell-off sharply, together with a possibly bolder action from “Super” Mario Draghi tonight. If the outcome is upbeat, then risk appetite will decide the direction.
Risk of European Central Bank (ECB) disappointment does exist tonight
Draghi has put his words on the table last Thursday that the ECB would do anything to preserve the Euro and it would be enough. The biggest barrier now is from the Bundesbank President Jens Weidmann but he still looks like having some reserve on large scale asset purchasing, which means there will be some compromise to be done before the ECB cheers on the market and bolsters the bonds in the currency bloc. Putting aside other considerations by Weidmann such as the line between fiscal and monetary policies, he will definitely try to avoid his credibility from being affected by a “180-degree” shift. Draghi is also unlikely to put Weidmann at the corner of a boxing arena when he stressed on the sound relationship between them.
If there is no “real action” tonight from the ECB, the scenario will not only be ugly and Draghi has all the fingers pointing at him, but that will also affect his own credibility. However, I think the possibility will be less than 30 per cent. When Peter Cook interviewed Timothy Geithner, the US Treasury Secretary stressed that the “Euro Zone crisis” will be a more significant risk than the “fiscal cliff”. He also mentioned that there might be some bolder actions from the central banks in Europe but it will take time to solve the entire problems.
The Euro Zone is suffering all kind of economic crisis at this time, such as extremely slow manufacturing activities, record high unemployment rate, lower demand for loans, high borrowing cost, etc.
With the low loan demand, the market will disappoint once again if there is only a rate cut tonight because lower interest rate does not really help if the real demand is low. Based on the chart below, the credit demand for the ECB has deteriorated in the Q2 2012.
Source: Bloomberg Click the image to enlarge
Blog Post This Week Suggested Trade With :
Disclaimer
The analysis we provide is based on the average estimate of price movements in one day. Does not guarantee what we deliver is actually a proper and correct. Everything that happens in the decisions you make on your trading transaction is to be Your responsibilities.
Visit Us www.deryworldscorp.web.id
Blog Post This Week Suggested Trade With :
Disclaimer
The analysis we provide is based on the average estimate of price movements in one day. Does not guarantee what we deliver is actually a proper and correct. Everything that happens in the decisions you make on your trading transaction is to be Your responsibilities.
Visit Us www.deryworldscorp.web.id
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