US Trade Balance (SEP) (13:30 GMT) U. of Mich. Confidence (NOV P) (15:00 GMT)
Actual: -$64.3B Actual: 92.3
Expected: -$66.0B Expected: 93.6
Previous: -$69.0B Previous: 93.6
How Did the Markets React?
With potential to be the most active day this week for the markets, todays numerous US indicators failed to provide support for either the bulls or the bears. In the first wave of indicators released this morning, the confliction was already evident. The long-anticipated print of the September trade balance stole the spot light at 13:30 GMT. Following Augusts record deficit, the following months trade account was able to shave off more of the shortfall than was expected. The combined efforts of a record export bill and second drop in energy imports allowed for the biggest single drop in the nations deficit in two years. Too strong to pass up, all three markets responded as expected, but the difference came with how long the optimism held out. For the EURUSD, the initial reaction ran out of steam the quickest as the simultaneous release of the import price index quickly conquered the weak bullish front. With October import prices sinking another 2.0 percent, expectations for another rate hike from the Fed in the first half of 2007 have taken a heavy blow. The doubt in dollar-denominated assets only worsened with the University of Michigans preliminary consumer confidence survey for November. Predicted to offer a repeat of the previous months 15-month high, the index instead contracted 1.3 points even as cheap gasoline and a strong employment report fortified Americans financial positions.
Bonds US 10-Year Treasury Note
Treasuries reacted quickly to this mornings data, but the movement was mild in comparison to some of the moves seen in the previous weeks. This is unusual considering the reports released today could have greater implications for debt than many of the more energized reports released before. In the minutes following the first pair of releases, government bonds followed the trend. Such a large drop in the trade report provided relief to one of the most pressing issue in the US economy. The moments after the release, the 10-year note dropped 2/32nds and extended the run for an overall 7/32nds slide to 101-23. It didnt take long however for investors to cut the move short as a second monthly drop in the import price index adds to speculation that the next Fed move will be a cut. With T-notes already rising, the U of Mich. Read offered little fuel as an ascending triangle pattern matures below 101-31 resistance.
FX EUR/USD
Like in equities and debt, US dollar traders were tuned in to the same frequency with this mornings releases. After discounting the market worthiness of the trade account over the past few months, Septembers sharp contraction brought fundamentalists back to their seats. The market seems more interested in the greater than expected correction in the large deficit than month after month of new record shortfalls. This is likely due in part to the impressive move even when the energy component was excluded. Over the month, exports rose 0.5 percent to a $123.2 billion record. This, taken with the impressive growth and demand from Europe and Japan recently, may indicate the turn in the trade account that economists, monetary policy officials and politicians have been waiting for. In the minutes following the release, the EURUSD dropped 45 points. However, the nagging pessimism underlying the import price index and the existence of a weighty support level around 1.2750 led dollar bulls to take profit. The inflation gauge is particularly taxing for the dwindling ranks of the inflation hawks who are still holding out for another hike from the Fed in the first half of the 2007. The rebound proved more momentous than the original decline itself. Prior to the November confidence survey from the University of Michigan, the pair was already 30 points off its low. From there, an unexpected dip in optimism lit another fire under the anti-dollar move as traders held on for a run all the way to 1.2850, tallying a strong 100-point range for the day.
Equities S&P 500 Index
Stock indices responded to todays economic numbers with the weakest conviction of the three markets, but the follow through was one of the strongest. Already levied with the disadvantage an open a full hour after the mornings first round of releases, traders had time to weigh the relevance of todays data. The positive change in the trade deficit was welcome by shareholders. With US growth slowing to a modest 1.6 percent pace of expansion, a strong rebound in exports could pick up the slack in revenue where domestic sales leave off. Similarly, the 2.0 percent drop in import prices was an advantage to business in the form of cheaper input prices; but also a burden in terms of competition. Nonetheless, the bulls couldnt find their footing as the index found its high around 1,388.92. This has created a triple top in the past three sessions. As investors eyed the growing level of resistance, the report of sliding consumer sentiment stoked fears that American consumers would control their spending habits in the critical end-of-year holiday session and sabotaged any possibility of taking out the high today. Accounting for the biggest move of the day, the S&P 500 dropped 4.1 points in the fifteen minutes after the announcement. From there, a failed attempted to match earlier highs turned into a steady decline. Falling into the close of the day, the index closed 7.24 points lower on the session at 1,378.33.
