New concerns over developments in the U.S. economy surfaced last week, and seem to be the main focus in European trading Monday. Stocks have turned positive after a weak opening, and the dollar continue to slide against most currencies.
“The economic outlook for the U.S. economy now seems more uncertain than before, which also has taken the focus away from the debt crisis in the euro zone.”
Anders Green Kjelsrud
Several disappointing U.S. macro numbers was presented last week, and renewed the fears that the U.S.recovery is losing momentum. Regional business confidence index for manufacturing fell sharply, while actual spending figures suggested that consumers have become more cautious. And Friday’s University of Michigan‘s consumer confidence index for July showed that consumers also expressed that they have become more concerned.
The benchmark confidence index fell from 76.0 to 66.5, and reversed virtually the entire rise of the past year.
The second confidence index, by the Conference Board, have also dropped lately.
The coming week do not contain many macro numbers that are able to shed new light on developments in the U.S. economy.
However, there are some interesting figures; especially the new numbers from the U.S. housing market.
The NAHB’s index (mood barometer for the contractors) is due for publication later today.
Among other events from the United States this week it is worth noting Governor Ben Bernanke’s semi-annual examination of the Senate banking committee.
Despite the relatively weak macroeconomic figures, managed the largest U.S. stock indexes to almost sideways, until they fell on Friday, after sharp rise the previous week amid generally pretty positive earnings reports for the second quarter.
In currency markets the dollar weakened on a broad front through most of last of week.
Trade Weighted fell by a total of two percent – about the same as the depreciation against the euro.
Against the Japanese yen has been weakening even something bigger. In recent months, the dollar have moved as a typical safe-haven currency. Once the uncertainty rise, the dollar have been steady. It also certainly strengthened in the wake of the weak macro numbers. This was, however, not the case by the end of last week.
“That seemingly small shift is probably related to the economic outlook for the U.S. economy now seems more uncertain than before, which also has taken the focus away from the debt crisis in the euro zone. This has contributed to a greater appetite for the euro. In addition, last week the holding auctions of both Greek, Spanish and Portuguese government securities, with tolerable manage outcomes,” analyst Anders Green Kjelsrud at DnB NOR Markets writes in today’s Morning Report.
Rates On The Rise
Money market rates in the euro zone has risen quite significantly recently, which also may have contributed to increasing demand for euros.
“With virtually unlimited supply of money in the last year, money market rates fell well below the central bank‘s key interest rate on one per cent. After the decay of the loan from the ECB to banks in the entire EUR 442 billion for a couple or three weeks ago, however, excess liquidity has been greatly reduced. This provides pressure up on the money market,” Kjelsrud explains.
Another possible factor behind the rise in interest rates, the uncertainty ahead of the publication of stress tests of the European banks, which will take place on Friday.
The report will probably take a lot of the market focus this week. The main purpose of publishing the results of stress tests is to reduce the uncertainty in the markets.
“A major problem in the European financial market today is uncertainty about which banks to take huge losses and the banks have enough capital to meet these losses. As long as uncertainty prevails, even healthy banks are affected by the financing is less available,” DnB NOR Markets points out.
“Otherwise, we note that the Norwegian krone has weakened one part against both the euro and the dollar during Friday afternoon and continued during the weekend. EURNOK traded this morning around 8:13 to 8:14. The NOK decline can probably be explained by a general decline in risk sentimentet while markets are characterized by the fact that it’s July and summer vacation for many. As we have discussed on previous occasions, illiquid markets this summer will be contribute to greater price fluctuations for the Norwegian crown.”
Macro Calendar the week contains few of the real goodies; the euro zone PMI, and several indices, in where the most important probably will be the German IFO index on Friday.
In Norway, Norges Bank publishes its lending survey for the second quarter on Wednesday, that normally don’t create any major market reactions.
Market Snap Shots
Here’s a few snap shots of the forex market at 14:30pm (CET):
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