The last economic weigh-in for the dollar this week led to yet another market-wide sell off, further pushing some of the majors to new lows. After a number of disappointing indicators sprinkled through the sessions, todays numbers seemed the worst of the lot with surprises that have triggered irrational bears fears that the worlds largest economy is slipping into a recession.
The pervasive feeling in the market that the economy will at least slow further is seen in the relative levels of the majors. The EURUSD pushed for another 21-month high after a hefty 130 point move to 1.3350. Seemingly unstoppable, the pound is exploding higher with another 200 points added to the GBPUSDs ascent to 1.9850. With no visable levels of support or resistance in sight, the market is obviously using big round figures in the interim. Shunting the overall trend, a week Japanese yen helped the USDJPY from straying to far from its range, with a 140 point drop only setting the pair down on the 115 figure. Finally, the franc made its own 105 point peak-to-trough drop, but solid support seen around 1.19 is helping the pair catch its breath.
Over the past three sessions, a number of indicators have been released to the great interest of fundamental and technical traders. However, each day had at least one release that effectively kept the bearish sentiment under wraps. Todays offerings, on the other hand, were singularly burdensome for a currency representing an economy whose pace of growth has stepped down markedly over a year-and-a-half. The two significant releases scheduled for release this morning hit the wires simultaneously, which in effect leveraged the resulting sell off. Construction spending for October was expected to be a non-event. Though housing has become a media red-alert staple, the broader construction number was only expecting a 0.4 percent contraction, only slightly worse than the previous month. This was perhaps one of the reasons the market was caught off guard. When the shock of the headline number dulled, the market surveyed the damage. The previous months original 0.3 percent contraction in spending was revised to a 0.8 percent drop to make it one of the worst back-to-back declines in years. Also, this was the sixth month that the gauge has either gone unchanged or declined. A quick scan of the breakdown of building projects revealed a 1.9 percent drop in home building the pace car for the huge drop. Another sign that the housing markets correction will exert pressure on growth, the sub-gauge has fallen now for seven consecutive months.
The other reason the dollar was sent into a tailspin of wholesale selling was the nationwide ISM manufacturing read. Yesterdays Chicago PMI report proved a spot-on forecast of national activity for November. For the first time in over three years, factory activity in the United States slowed, a second pillar knocked out from under the economy. The least of the markets worry was the fact that the 49.5 print was below the markets 51.5 consensus. More important was the unimpressive breakdown. Making up nearly a third of the overall report, the new orders component hit its lowest level since April 2003 when it dropped 3.4 points to 48.7 on the month. Not an Earth-rocking surprise given Octobers durable goods report showing the biggest drop in orders in six years. Production slipped below the 50.0 contractionary/expansionary mark as well to 48.5. Another key issue was the drop in the employment factor to 49.2, which led the market to quickly discount its previous expectations for NFPs and the manufacturing jobs report due next Friday. From the lines of bad and worse news, one number was met with mixed feelings. Prices paid rebounded solidly into expansionary territory from its four-and-a-half year low in November. For the already struggling manufacturing sector, this could help flood the boat; but the inflationary aspects for the Fed are easily construed as a means to keep interest rates from the guillotine. Now market participants will look ahead to next weeks sparse offerings (ISM services and NFPs), and those itching to buy on the prospect of an oversold dollar will see if the suspected easing in volatility in the first half of the week can help.
Though crude oil prices were finally halting their march higher Friday, equities markets were too enthralled with the drop in the ISM to put in a serious bid. Pacing the benchmark indices lower by 18:10, the NASDAQ was off 1.18 percent to 2,403.04. Following with some distance, the Dow sank 0.68 percent to 12,138.37 while the S&P 500 fell 0.63 percent to 1,391.84. From the masses of lower stocks, one unusually green ticker was GM. General Motors Corp.s shares were up 0.9 percent on a $0.27 run to $29.50 after it was announced the selling pressure from Kirk Kerkorians position dumping was over since he was now fully out of the company. Eslewhere, Advanced Micro Devices Inc. was quoted at $20.58 after a $0.99 sell off measuring 4.6 percent after it was revealed the Department of Justice was subpoenaing the company on a possible anti-trust violation over its graphics processors and cards.
Treasuries were spared from too much pain by mid-day as the plunge in yields found a modest retracement. By 18:10 GMT, the T-note was quoted at 101-18 after prices rose 7/32nds as its yield edged 3 basis points lower to 4.429. Bonds managed an 8/32nds advance to 99-08 with a yield of 4.545 after a two basis point slide.
