The recent bout of volatility continues to challenge investors
across all asset classes. Many refer to market declines as typical
of ascending volatility, but in its true meaning the term depicts a
period of increasing uncertainty with prices prone to surge and
fall causing investors to sharpen their reactions. This picture
remains true ahead of Friday's delivery by Ben Bernanke where it's
hard to gauge consensus. Equity investors are proving resilient in
anticipation of further stimulus in order to prop up demand and
earnings. Currency dealers are concerned that any kind of stimulus
announcement would further debase the value of the dollar. Fixed
income traders seem resigned to eternally low rates. After all,
what are the chances that Bernanke will say that bond yields are
too low when the purpose of quantitative easing is meant to depress
yields to spark borrowing? But then again, how likely is he to pin
the recent slide in yields on the U.S. credit-rating downgrade from
Standard and Poor's?
Japanese yen
- The Finance Ministry softened its tone over the yen's
appreciation by announcing a one-year subsidized loan program to
help domestic companies contend with a strengthening yen. Mr. Noda
said he would transfer an equivalent of $100 billion of Japan's
substantial forex reserves to the Japan Bank for International
Cooperation to help domestic firms acquire or relocate offshore in
an effort to circumvent an ever-strengthening yen. This seems to
offer a limited compromise to those manufacturers suffering from
either loss of demand or reduced overseas earnings as a result of
surging demand for the yen. Applause from the Bank of Japan
certainly appears to lessen the threat of currency intervention at
this point. However, Mr. Noda hasn't yet put away his sword. He
also intends to shame the largest 30 currency players by requiring
them to disclose their currency positions by the end of the quarter
in September. The yen continued to make gains against the dollar
following Wednesday's announcement and at ¥76.51 is heading to its
strongest level on the day per dollar with an eye on Friday's
post-war peak of ¥75.95.
U.S. Dollar
- A strong durable goods report for the month of July during which
orders for manufactured goods meant to last more than two years
jumped by 4% temper bearish undertones ahead of the start of equity
trading. The dollar nevertheless failed to find much comfort from
the report and continued to decline. Against a basket of bedfellows
the index slipped by 0.2% to 73.79. The Census Bureau showed off
continuously strong manufacturing output in today's report, which
does depict a healthy manufacturing core. Unfilled orders continued
to increase for the 15th month out of 16, as did the level of
inventories, which rose to the highest since 1992 records began.
And while that data might represent a bright spot it doesn't change
the outcome of Friday's speech from Bernanke, whose words resonated
in the August 9 FOMC statement when the committee judged that the
economy was "considerably slower than expected." Nor does the data
offset evidence of a dead-in-the-water housing market. Not only are
both existing and new home sales at multi-month lows according to
recently posted reports, but also mortgage demand continues to
decline. According to the MBA weekly mortgage index about 80% of
current activity results from refinancing demand. In the recent
week both the refinancing and purchase indices declined according
to today's report.
Euro
- The single currency continues to challenge the upper border of
resistance towards $1.4500 and showed little sign of restraint on
account of a slide in business confidence across German executives.
Since late July the Dax benchmark stock index slumped by 25%
causing 7,000 respondents to depict a gloomier view ahead than
economists had predicted. The Munich-based IFO's business climate
index slid to 108.7 from 112.9 and to its weakest since June 1010.
There were also disappointing readings for readings of investors'
current assessment and expectations for the economy amidst a
slowing global economy and spending cuts among peripheral European
nations, duty-bound to slash budget deficits. The euro remains
higher against the dollar at $1.4445 and fell marginally against
the yen at ¥76.52.
British pound
- The pound is heading towards its weakest reading in three
sessions against the dollar after trading to as high as $1.6528
earlier. The pound has recently been supported by growing
expectations for further easing in the pipeline from the Fed, while
it had also strengthened against an increasingly nervous euro.
Today the euro is better bid against the pound at 87.89 pence. The
pound slid to $1.6419 as sellers piled up to exit the unit.
Aussie dollar
- The Aussie reversed its optimistic rebound from a day earlier
when equity buyers sprang to life. The unit fell to a session low
buying $1.0450 after a government report showed a shortfall in
completed construction work in the three months ending June. The
New York Conference Board's leading index of economic activity
compiled using June data fell 0.8% while the index was revised
lower using first quarter data.
Canadian dollar
- The Canadian dollar once again gave up its earlier strength
against the U.S. to trade at $1.0125 in the absence of fresh
domestic data. The boost to U.S. durable goods orders initially
spurred enthusiasm for the loonie before the tonic wore off.