Currency markets were trading quietly into the end of the week, but the fundamental picture from the US economy couldnt be much brighter. A quick recap for the data that has printed over the past few days: a Beige Book with a hawkish bias; better than expected housing numbers; accelerating inflation; and now a new high in consumer confidence. The groundwork is being laid for a rebound in first quarter GDP.
From the majors, the euro-based pair was making the most convincing move through the three primary sessions. A choppy rise to 1.30 in the Asian hours, slowly turned into a consistent 85-point decline before 1.2915 held out. Euros doppelganger, USDCHF, was swept lower to support eyed around 1.2450 before working 80 points higher on the New York shift. Elsewhere, the British pound was atypically reserved as it moved between 1.9775 and 1.97, suggesting the significance of 1.9750 resistance no longer holds. Finally, still shaken by the event risk inherent in yesterdays BoJ decision, USDJPY spent most of the session in a 30-point range below 121.40.
After two sessions of wall-to-wall indicators, traders were prepared to spend Friday trimming their books of inactive trades and plan for the week ahead. However, the sole indicator hitting the tape during North American trading hours rose more than a few eyebrows. The University of Michigan and Reuters reported its preliminary survey of consumer confidence jumped to 98.0. This was the highest level of optimism among American consumers in three years. When economists were preparing their forecasts for the survey, there were a number of signs indicating confidence would be stoked going into the beginning of the year. Central to this hypothesis were cheaper gasoline prices. Since prices for regular unleaded surpassed $3 per gallon last year, every cent shaved off since then has been met with a cheer. As of two days ago, the national average was $2.20. Whats more, the massive hemorrhage in crude prices have yet to fully transfer to refined gasoline, leading many to expect even cheaper prices are ahead. Investment offered another pick-me-up for consumers. The benchmark Dow Jones Industrial Average marked a new record high in the past week while the S&P 500 rallied to a new five-year high.
Aside from these two up-to-date issues, consumers are also picking up on the same numbers that economists have warmed to. In the past few weeks, indicators tracking employment, housing and factory activity have steered better opportunities to the consumer sector and boosted the outlook for the economy at the same time. The Labor Departments statistics showed the unemployment rate held near its 5-year low in December while wages spent the second month at a six-year high. Elsewhere, some of the concern over a deflating housing bubble, and falling prices contributing to an erosion of wealth, was relieved by a turn in the NAHB indicator and jump in housing starts and permits. Even the rebound in the manufacturing sector is stoking optimism for in the form of jobs and for personal outlooks for the economy. A component of the University of Michigans survey, the economic outlook indicator rose to 88.7, its highest level since December of 2004.
Macroeconomics couldnt take hold in the equities market as stock investors focused on earnings numbers. The NASDAQ Composite was leading once again by 15:25 GMT with a 0.16 percent drop to 2,439.22. Following closely behind, the Dow was 0.13 percent lower at 12,551.67, while the S&P 500 was up marginally at 1,427.10. From the list of profits numbers in headlines, none was more pronounced that IBMs. Though the blue-chip reported an 11 percent increase in profit, many investors were expecting more from Big Blue. Conversely, shares of mobile-phone maker Motorola rallied on a 48 percent drop in fourth quarter profit. Shares rose $0.67 or 3.6 percent to $19.38 since the firm had already tempered investors expectations with an advanced warning issued two weeks ago.
Treasury traders were not shy in boosting yields on the jump in consumer sentiment. The ten-year note slipped 7/32nds to 98-27while its yield pulled 3 basis points higher to 4.773 by 15:25 GMT. Bonds fell 12/32nds to 94-10 as yields also grew 3 basis points to 4.866.
