FXIS Market Insights

Noteworthy...
• US real GDP grew at an annual rate of 1.6% in the second quarter of 2010 (ESA)
• US consumer sentiment rose to 68.9 in August from 67.8 in July (Reuters)
• The yield on the two-year notes fell to a record low of 0.46% (NY Times)
• The yield on the 10-year fell as low as 2.47% on Tuesday morning (NY Times)
• US Dollar fell below 84 versus Japanese Yen, closing the week at 85.19 (eSignal)
• Industrial new orders were up by 2.5% in Euro area (Eurostat)
• US new home sales were in July were 12.4% below June rate and 32.4% below June 2009 (ESA)
• US Durable Goods orders in July 2010 increased 0.3% to $193.0 billion (ESA)

Weekly Market Barometers

Chart Of The Week
Courtesy of Political Calculations, please find the chart of the week below.  As we reported last week, interest rates have been pushed down to their lowest levels for the year and with treasury yields near historic lows, the market does not appear to be worried about inflation at all.  One industry that has been bucking that low/no inflation trend for more than a decade now is the healthcare industry.  Despite numerous bi-partisan efforts, healthcare costs have been rising like clock-work each year.  No change in that trend is expected anytime soon…

source: http://politicalcalculations.blogspot.com/

Recommended Read
In case you are uncertain about the US economic outlook, rest assured that you are not alone!  Our recommended read for this week comes from Jackson Hole courtesy of Ben Bernanke and his “Economic Outlook and Monetary Policy”.  Curious to learn if you will be more certain or more uncertain about the prospects for the US economy after reading Mr. Bernanke’s speech..

Good luck and good investing!

Disclaimer
Neither the information nor any opinion contained in this communication constitutes a solicitation or offer by us to buy or to sell any securities, futures, options or other financial instruments or to provide any investment advice or service. Each decision by you to do any investment transactions and each decision whether a particular investment is appropriate or proper for you is an independent decision to be taken by you. In no event should the content of this communication be construed as an express or an implied promise, guarantee or implication by or from us that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Please note that there is no requirement and no commitment to make any payments to FX Investment Strategies LLC in order to access our published information be it via email or via website publication. All information is publicly available without any required monetary consideration.  Any payments or donations made by you are deemed to be voluntary and cannot be considered as payments for investment advice given to you.

Noteworthy... 
• US nonfarm payrolls fell 54,000 in August and the unemployment rate was 9.6% (BLS)
• US Private-sector payroll employment continued to trend up modestly 67,000 (BLS)
• US home prices in June were 3.6% above their year-earlier levels (S&P)
• Euro area and EU27 GDP grew by 1.9% compared with Q2 of 2009 (Eurostat)
• Canada’s economy grew by 2% in the second quarter of 2010, compared with a 5.8% growth in Q1 (Economist)
• Australia's economy grew by 1.2% in the second quarter and by 3.3% on the previous year (Economist)
• China's purchasing managers index rose by a surprisingly robust 0.5 points to 51.7 (Eurointelligence)
• India's economy grows most since 2007, GDP rose 8.% in Q2 from a year earlier (Bloomberg)
• Global foreign exchange reaches an average daily turnover of $4 trillion compared to $3.3 trillion in 2007 (BIS)
• Germany's unemployment rate fell to 6.9% from 7.6% a year earlier (Economist)
• US consumer confidence improved to 53.5 (1985=100), up from 51.0 in July (Conference Board)
• Japan announced a $130 bn stimulus package including low interest loans for financial institutions (Economist)
• US Dollar fell to new 15 year low against the Japanese Yen at 83.58 (Reuters)
• Euro area unemployment rate stable at 10.0%, EU27 stable at 9.6% (Eurostat)
• SEC declined to charge Moody’s for violating securities laws rating derivatives (NY Times)

Weekly Market Barometers

Chart Of The Week
Having just travelled a fair amount in the past two weeks, I had the impression that there are some positive signs in the real economy. The hotels I stayed at were not fully booked, but it was more difficult to find rooms than during the last two years.  Courtesy of www.calculatedriskblog.com comes a nice chart reflecting that experience as well.  US consumers are certainly not back to their pre-crisis spending sprees but there are some positive signs on the horizon.

Source: www.calculatedriskblog.com

Recommended Read
While banks and institutions are busy studying the new financial overhaul bill, some of the institutions who had been contributing players in creating the bubble leading to the credit crisis have gotten away with a slap on the wrist; others simply got away on technicalities. Please consider: No Charges for Moody’s in Ratings Violation.

“Because of uncertainty regarding a jurisdictional nexus to the United States in this matter, the commission declined to pursue a fraud enforcement investigation,” the S.E.C. said in its report.

Wonderfully crafted words such as the “uncertainty regarding a jurisdictional nexus” is what does it for me; the inquiring mind has to wonder how “jurisdictional nexi” are going to be handled in the new financial overhaul bill...

Good luck and good investing!

Disclaimer
Neither the information nor any opinion contained in this communication constitutes a solicitation or offer by us to buy or to sell any securities, futures, options or other financial instruments or to provide any investment advice or service. Each decision by you to do any investment transactions and each decision whether a particular investment is appropriate or proper for you is an independent decision to be taken by you. In no event should the content of this communication be construed as an express or an implied promise, guarantee or implication by or from us that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Please note that there is no requirement and no commitment to make any payments to FX Investment Strategies LLC in order to access our published information be it via email or via website publication. All information is publicly available without any required monetary consideration.  Any payments or donations made by you are deemed to be voluntary and cannot be considered as payments for investment advice given to you.

Noteworthy... 
• US consumer sentiment climbed to 69.6 following a reading of 67.8 in July (Reuters)
• US CPI increased 0.3% in July on a seasonally adjusted basis (BLS)
• US retail sales in July 2010 were $362.7 billion, up 0.4% from June and up 5.5% from July 2009 (ESA)
• GDP increased by 1.0% in the Euro area (EA16) and the EU27 during the Q2 of 2010 (Eurostat)
• Germany GDP expanded 2.2% in the second quarter compared with the previous three months (FT)
• Bank of England lowers economic growth forecast and raises inflation expectations for 2011 (AP)
• US trade deficit in June 2010 increased 18.8%, to $49.9bn (ESA)
• US imports from China reached $32.9bn in June, the highest since October 2008 (Economist)
• Fed downgrades outlook, target range for the federal funds rate remains at 0-0.25% (FT)
• German exports were €86.5bn ($115bn) in June, up 3.8% from the previous month (AP)
• China’s goods-trade surplus almost trebled in the year to July, reaching $28.7bn (Economist)
• German imports were €72.4 billion in June, 31.7% increase on the year and the highest level since 1950 (AP)
• Freddie needs another $1.8bn-US home loans bail-out now totals $148.3bn (FT)
• The Bank of Japan held its key policy rate steady at 0.1%, as expected (Bloomberg)

Weekly Market Barometers

Chart Of The Week
Courtesy of Political Calculations comes this excellent chart for the week.  We looked at this year’s US Budget proposal with plenty of skepticism before.  In our market insights edition of February 6 of this year, we concluded that “20 Million new jobs will have to be created in the next 10 years and, as per forecast, the US economy will have to grow from about $14 trillion to about $24 trillion by 2020, an average rate of almost 5% per year” if the projections were to come true - quite a tall order (if you’re not China who can seemingly order economic growth). Since there are no noticeable changes in the employment landscape, particularly with regard to the long-term unemployed, it remains questionable how fast consumers can pick up the slack and spend their way to prosperity again.

Source: http://politicalcalculations.blogspot.com/

Recommended Video
Please consider: Bill Black's 'Alternative' to the Rating Agencies: "Get Rid of Them"

Good luck and good investing!

Disclaimer
Neither the information nor any opinion contained in this communication constitutes a solicitation or offer by us to buy or to sell any securities, futures, options or other financial instruments or to provide any investment advice or service. Each decision by you to do any investment transactions and each decision whether a particular investment is appropriate or proper for you is an independent decision to be taken by you. In no event should the content of this communication be construed as an express or an implied promise, guarantee or implication by or from us that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Please note that there is no requirement and no commitment to make any payments to FX Investment Strategies LLC in order to access our published information be it via email or via website publication. All information is publicly available without any required monetary consideration.  Any payments or donations made by you are deemed to be voluntary and cannot be considered as payments for investment advice given to you.

The currency markets have officially entered summer vacation.  Volume is down and so is the Dollar pretty much across the board.  Having dropped more than 9% since the recent high of 88.50 in Mid-June, the US Dollar Index is now testing the 200-day moving average (see red line below).

By contrast, the Euro has been rising from the ashes for several weeks now, making a strong comeback. The single currency has now entered the technical retracement areas as depicted by the Fibonacci retracement levels in the chart below. 

More significant than the Euro strength, it is rather the overall US Dollar weakness making a continued rise in the Euro a likely outcome, not just a technical trading scenario.  The Dollar weakness has been even more apparent versus the Japanese Yen.  The greenback’s drop to 85 on Friday has been the lowest point since 1995, on the back of record low Japanese yields.  The last time 10-year Japanese Government Bond yields were below 1%, the US Dollar traded above 100 giving you an indication of just how much the sentiment has turned against the greenback in recent weeks.

Yet another way of looking at the Dollar woes is to plot the price of Gold in Euros rather than Dollars.  While there is no doubt that Gold has been a fantastic trade in the past decade, there is some concern about loading up on the most “precious” of all metals, when every small investor seems to be trying to jump on the band wagon.  I have raised these concerns in a previous article Kramer says: You must have at least 1/10 of your portfolio in Gold - I say: Not so fast! 

In Euro terms, the price of Gold has dropped over 13% since the all-time high in June.  Combine that with an average 7% premium over the spot price of Gold that an average investor has to pay for some of the physical and quasi physical gold investments out there and you’re looking at a drop of 20% for a Euro denominated small Gold investor – not something a small investor can stomach that well.

 

The US based investor may take some comfort in a small percentage allocation of Gold against a possible dilution in the value of the US Dollar.  However, one must keep in mind that Gold trades like a commodity and can be volatile. 

Going back to the US Dollar, the recent economic concerns expressed by Fed chairman Ben Bernanke combined with persistently stubborn levels of unemployment make a good case for another round of quantitative easing.  The prospect of US rates effectively dropping further will continue to put pressure on the US Dollar.  If the US were to follow the same economic fate as Japan did for the past two decades, then there is some hope for the US Dollar catching the curve again, despite ridiculously low yields.  Yet, it is questionable whether the US Dollar can retain its value against all other currencies while keeping rates at or near historic lows with record Bond prices but also enjoying a continued rise in the stock market. Something has got to give; take a pick as to which market will do the giving...

Noteworthy... 
• US Dollar traded near a 15-year low versus the Yen, reaching a low of 85.00 on Friday (Reuters)
• US 2-year Treasury yields fall below 0.5% for the first time on record (Bloomberg)
• US jobs declined by 131,000 in July, and the unemployment rate was unchanged at 9.5 (BLS)
• Berkshire Hathaway's profit fell 40% on derivatives losses (FT)
• Industrial producer prices up by 0.3% in Euro area (Eurostat)
• 10-year government bond yields in Japan fell below 1% for the first time in seven years (FT)
• The European Central Bank held interest rates at 1% as expected (Reuters)
• Australia posted a trade surplus of A$3.54 billion in June (Australian Bureau of Statistics)
• Average rates for fixed 30-year mortgages fall to 4.49% in the US, lowest level on record (AP)
• US personal income in June 2010 increased less than 0.1% from May 2010.  (ESA)
• Australia's central bank kept interest rates steady at 4.5% (WSJ)

Weekly Market Barometers

Chart Of The Week
Employment numbers in the US have been disappointing with payroll jobs declining worse than expected.  As the Bureau of Labor Statistics reports:

Total nonfarm payroll employment declined by 131,000 in July, and the unemployment rate was unchanged at 9.5 percent, the U.S. Bureau of Labor Statistics reported today. Federal government employment fell, as 143,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment edged up by 71,000.

Slightly more concerning is the persistently high number of  long-term unemployed - those who have been jobless for more than 6 months).  That number remains at 6.6 million and is now an alarming 44.9%  of all unemployed persons.  The only slightly encouraging sign is that the overall hiring picture, subtracting the numbers of ex-Census hiring, has been improving slightly.

Source: www.calculatedriskblog.com

Good luck and good investing!

Disclaimer
Neither the information nor any opinion contained in this communication constitutes a solicitation or offer by us to buy or to sell any securities, futures, options or other financial instruments or to provide any investment advice or service. Each decision by you to do any investment transactions and each decision whether a particular investment is appropriate or proper for you is an independent decision to be taken by you. In no event should the content of this communication be construed as an express or an implied promise, guarantee or implication by or from us that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Please note that there is no requirement and no commitment to make any payments to FX Investment Strategies LLC in order to access our published information be it via email or via website publication. All information is publicly available without any required monetary consideration.  Any payments or donations made by you are deemed to be voluntary and cannot be considered as payments for investment advice given to you.