Strategy Reports

“Canada's Currency Tumbles to Six-Week Low as Crude, U.S. Confidence Drop”
By Owen Brooks (1.7.09)
 
 
Canada's Currency Tumbles to Six-Week Low as Crude and U.S. Confidence Drop. Canada’s dollar depreciated to the lowest level in six weeks as crude oil tumbled below $70 and
U.S. consumer confidence unexpectedly fell, prompting investors to trim bets on higher-yielding assets.
 
Bloomberg: Euro's Four-Month Rally Versus Yen May Stall, Reverse: Technical Analysis. The euro’s rally against the yen since January may stall at 135.38, Bank of Tokyo-Mitsubishi UFJ
Ltd. said, citing trading patterns.
 
British Pound Declines Against Dollar for Second Day, Weakens Versus Euro. The pound fell against the dollar and the euro.
 
Yen Falls Versus Euro as China Manufacturing Rises, Damping Safety Demand. The yen fell to a two-week low against the euro after a report showed China’s manufacturing expanded
for a fourth month, increasing demand for higher- yielding assets.
 
Japan’s Tankan Q2 large manufacturers index improves to -48 from prior read of -58, but disappoints expectations for a -43 level; outlook hits -30, above the consensus call for an
increase to -34 from -51; non-manufacturing index reaches -29 in Q2, lower than forecasts for -27 level, but improving from Q1’s -31 read.
 
Australian seasonally-adjusted May retail sales rise 1.0% month-over-month, above expectations for 0.5% increase and prior +0.3% read.
 
U.S. stock indexes finish the quarter down on the day but positive on Q2 as a whole: Dow closes down 1% on the day at 8,447, but up 11% on the quarter – its first quarterly
advance in over a year-and-a-half; S&P 500 is down 0.9% at 919 on the day, but up 15% on the quarter – its first quarterly gain in six quarters.
 
U.S. Federal Reserve buys $7.0 billion in Treasuries, ranging in maturity from 2016-19; dealers offered $23.564 billion in bids.
 
President Obama says that proposed Consumer Financial Protection Agency “will have the power to set standards so that companies compete by offering innovative products that
consumers actually want -- and actually understand."
 
U.S. Justice Department demands that UBS unveil list of tax evaders.
 
AIG shareholders reject proposal to increase common shares in circulation to 9.225 billion from 5.0 billion.
 
Wednesday’s Outlook:
 
The European session will undoubtedly be interesting, with markets receiving German retail sales for May and the UK’s manufacturing PMI for June.
 
At 2 a.m. EDT, economists expect German retail sales to rise 0.1% month-over-month in May after increasing 0.5% in April. Meanwhile, annual sales are forecast to drop 1.4%
compared to the previous month’s 0.8% contraction.
 
Then, at 4:30 a.m. EDT, markets will receive the UK’s manufacturing PMI for June. It is expected to rise 0.6 points to 46.0.
 
Even if in-line, the index will, nevertheless, remain below the 50-point threshold indicating growth in the sector.
 
Canadian markets may be closed for Canada Day on Wednesday, but the U.S. session will more than make up for that: stateside releases include the ADP employment report, the
ISM non-manufacturing index, and pending home sales.
 
The session kicks off at 8:15 a.m. EDT when ADP releases its U.S. employment report for June, which is expected to suggest a decline of 374k jobs compared to May’s 532k fall.
 
Although used as a predictor for the BLS nonfarm payrolls reports, the ADP report failed to accurately predict the surprise 345k drop reported by the benchmark U.S. employment
release for May.
 
Economists currently expect Thursday’s U.S. nonfarm payrolls report to reveal a decline of 375k jobs in June.
 
Then at 10 a.m. EDT, the ISM releases its manufacturing report for June, which is expected to pick up 1.2 points to a reading of 44.0.
 
Although the headline index remains below the 50-point threshold indicating growth, May’s new orders component surged to 51.1, sparking a significant amount of optimism over a
U.S. economic recovery
 
Also of note is last week’s May U.S. durable goods orders ex. transportation data, which surprised markets with a 1.1% month-over-month increase, rubbishing expectations for a
0.5% decline and overshadowing the prior month’s 0.4% gain.
 
In other related data, the Philadelphia Fed’s manufacturing index surged to -2.2 in June despite expectations for an increase to -17 from -22.6. Meanwhile, the Empire Fed’s index fell
to -9.41 against expectations for a pull-back to -4.6 from -4.55. Also, earlier on Tuesday, the ISM reported that its Chicago PMI rose five points to 39.9 in June, further than
expectations for a 4.1-point gain.
 
Released simultaneously with the ISM report is the U.S. pending home sales indicator for May. It is expected to add another 1.1% month-over-month increase to Aprils 6.7% rise.