| Weekly Forex Fundamentals | Written by BHF-BANK | Jan 25 10 11:24 GMT | | |
| (Week of 25 to 31 January 2010)
Given that pending home sales plummeted by 16% mom in November, we expect existing home sales, which tend to lag by one or two months, to have dropped significantly in December, from 6.54m to 5.80m. New home sales already plunged in November from 400k to 355k - their lowest level since April. The unfavourable data could have been connected with the original deadline of first-time home buyer credit, which has since been extended until April 2010. However, we predict that new home sales will have rebounded to 370k in December; this would still be slightly lower than the previous year's level. The Conference Board's consumer confidence went up from 50.6 to 52.9 in December, with expectations rising significantly, but current assessment, which was already low, deteriorating further to a 27-year low. The University of Michigan's (UMI) preliminary January consumer sentiment showed a different pattern, as its increase was dampened by a fall in expectations. We expect the Conference Board's consumer confidence to have at best remained at its current low level of 52.9 in January: expectations might have correct downwards, but the current assessment could have risen, albeit only slightly, as the latest employment report was somewhat disappointing and still showed a decline of 85k in non-farm payrolls. Given that the weekly ABC consumer comfort poll has continued to decrease, we expect UMI's final January sentiment to have gone down to 72.0, if not lower.
The FOMC statement could acknowledge that the moderate economic recovery has continued and broadened somewhat, and reiterate that the labour market deterioration is abating. However, household spending will probably still be described as constrained by a weak labour market, modest income growth, lower housing wealth and tight credit. Given substantial resource slack, the committee will still be expecting inflation to remain subdued. Thus the fed funds rate is likely to be kept at 0-0.25%. But given that internal discussions about the current very accommodative stance of monetary policy have intensified, the FOMC could perhaps modify the phrase that the fed funds rate could remain at exceptionally low levels - a synonym for almost zero - for an extended period. As the unemployment rate is set to remain elevated during 2010, the FOMC is unlikely to shift to a restrictive policy in the near future, and the fed funds rate will probably stay low for quite some time. But in light of the economic stabilisation and the improvements in the functioning of financial markets, the FOMC could nevertheless begin to raise the fed funds rate slightly from the June meeting on. It should be noted that, at this week's meeting, the Fed will be preparing the quarterly update of its forecasts, which will be presented in the FOMC minutes on 17 February. Durable goods orders increased by a mere 0.2% mom in November, dampened by the weakness in transportation orders. But they could have gone up much more in December, as Boeing reported a sharp increase in aircraft orders from 9 to 59. We predict that durable goods orders will have risen by 1.5% mom in December. However, after having risen by an impressive 2% mom in November, durable goods orders ex transportation could have slowed to 0.5% mom, despite the ISM new orders component having jumped to 65.5 - the highest level since January 2005.
Initial jobless claims unexpectedly soared by 36k to 482k in the week ending 16 January, and the 4-week moving average rose to 448.3k - the first increase after 19 consecutive declines. The reporting week was the relevant one for the January labour market report, and thus the increase could indicate that job losses continued into this year. However, according to the labour department, the increase in claims was due to administrative rather than economic reasons, as a backlog had built up during the holiday period. Thus jobless claims could have reversed most of the previous week's rise and declined to about 450k. GDP growth in Q3 was revised down from the initial 3.5% to 2.2% in the third estimate, largely because of a smaller contribution from inventories. However, in Q4 the GDP growth rate could have accelerated to about 4.5% qoq, with inventories being responsible for more than half of the growth. Apart from that we expect personal consumption to have made a much smaller contribution than in Q3, when the Car Allowance Rebate System had a favourable impact. Government spending is likely to have remained strong, but corporate investment will have been held back by the weakness in non-residential construction, and the modest performance of the NAHB index and housing starts indicates that the recovery in residential investment has stalled. Net exports could have contributed negatively again, albeit only slightly due to the global recovery. The PCE core deflator will probably have risen marginally to 1.3% in Q4, still close to the lower end of the Fed's comfort zone.
The employment cost index (ECI) is likely to have gone up moderately again by 0.4% qoq in Q4, which would leave the annual rate at a mere 1.5%. At the end of 2007, before the onset of the recession, the annual rate stood at 3.3%. The Chicago Purchasing Manager Index was initially reported to have jumped from 56.1 to 60.0 in December. But according to the new seasonal adjustment figures, it went up from 55.5 to 58.7. We predict that the Chicago PMI will have decreased to about 56.0 in January, which would still be a robust level. BHF-BANK This report has been prepared by BHF-BANK Aktiengesellschaft on behalf of itself and its affiliated companies (together "BHFBANK Group") solely for the information of its clients. The information and opinions in this document are based on sources believed to be reliable and acting in good faith, but no representation or warranty, express or implied, is made by any member of the BHF-BANK Group as to their accuracy, completeness or correctness. Opinions and recommendations are given in good faith but without legal responsibility and are subject to change without notice. The information does not constitute advice or personal recommendation, for which the duty of suitability would be owed, but may facilitate your own investment decision. Moreover, you should seek your own advice as to the suitability of an investment matter mentioned herein. Investors are reminded that the price of securities and the income from them can go down as well as up and that the past performance of an investment or a market is not necessarily indicative for future results. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete, and this document is not, and should not be construed as, an offer to sell or solicitation of any offer to buy the securities mentioned in it. BHF-BANK Group and its officers and employees may have a long or short position or engage in transactions in any of the securities mentioned in this document, or in any related securities. This publication must not be distributed in the United States. | |
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