With the uncertainty surrounding the elections off the table, the currency markets returned to more reliable and instantly gratifying economic indicators. Amid a number of notable indicators, the trade figure was undoubtedly the bulls rallying point, but a slide in inflation and consumer confidence sowed the seeds of doubt.
From the EURUSD, the 50-point advance after the trade report down to 1.2750 proved modest compared to the reversal that extended for 100 points to 1.2850 resistance. For the Japanese yen, the rebound against the greenback led the pair 80 points lower down to 117.80, near the level of price action seen in the overnight sessions. The GBPUSD seemed to make a confident break below support at 1.9000, but the 140 point rebound brought the pair right back to the session highs around 1.9085. Finally, the Swiss franc once again tallied an impressive run in a 120 point drop to 1.2400 resistance.
After a week of nearly no fundamental indicators, Thursdays docket was overflowing with market-moving releases. The headline event-risk rested with Septembers trade report from the Commerce Department. Already expected to contract on the noticeably cheaper import energy bill, the record deficit bested expectations by contracting the most in two years to print at a $64.3 billion shortfall. Imports through September contracted 2.1 percent to a $187.5 billion nominal value. Key to the periods decline was the foreign crude bill which dropped $22.7 billion as the price of the volatile commodity worked its way lower towards $60 per barrel. More promising for the trade account however was the continued strength in exports. Rising 0.5 percent to a record $123.2 billion, the growing demand from outside the US boarders may prove the key to eventually taming the long-standing trade deficit. From the component trade-groups the rise in capital goods shipments to $713 million was worthy of note. Going into this trade report, economists were looking to tempering their expectations to account for the shifting energy dynamic. With a new record in exports and large trade partner economies like Japan and Europe expected to continue to consumer US goods, the results were better than expected. Now the market will look ahead to Octobers report to see if the contraction evolves into a steady trend or otherwise revert with the stabilization in energy prices.
Though the monthly trade report lit a fire under bulls, the sessions other indicators acted just as quickly to sabotage the much needed fundamentally-based run. Released simultaneously with the balance, the import price index for October stole confidence lining up behind stronger growth, by weighing down interest rate speculation. The leading inflation dropped 2.0 percent on the month to match Septembers pace, which happened to be the biggest drop since April of 2003. Equally disconcerting for inflation hawks was the first drop in the annual measurement since September of 2002. From the summary breakdown, the culprits behind the softer price report were obvious. The petroleum group issued a second large contraction of 8.3 percent, while the related industrial supplies sub-component shrank 5.6 percent. This places a considerable burden on next weeks PPI and CPI reports to keep inflation risk on the Feds radar.
While the import gauge muffled the bullish dollar response, the later released University of Michigan confidence survey helped to topple the run. The preliminary report for November was expected to repeat last months 15-month high 93.6 read. Instead, optimism slipped for the first time in three months, albeit only slightly. At 92.3, the sentiment gauge was still buoyant as consumers responded to the lowest gasoline prices of the year and a five-year low unemployment rate with a vote of persistent optimism. However, with both the expectations and current conditions components edging lower, the overall turn could not be ignored. Furthermore, another drop in the year-from-now inflation consensus from 3.1 to 3.0 percent, added fuel for those worrying over the earlier released import index. Coming with little fan fare, the wholesale report should also be noted. Often used as a spring board for the retail sales equivalent released later, wholesales sales actually dropped 0.3 percent for the month on a sizable 1.7 percent drop in autos.
Equities were mixed by mid-day Thursday as waning consumer confidence overshadowed the pick up in trade activity. By 17:15 GMT, the Nasdaq was 0.3 percent higher at 2,392.08 for the only advance. The SP 500 was edging lower with a 0.1 percent drop to 1,384.19 while the Dow slipped 0.35 percent to 12,134.20. From the market moving list, Cisco Systems led the day with a big 6.7 percent advance after making a $1.68 climb to $26.78 on the report of a 28% jump in earnings in the first quarter of the companys fiscal year. In other news, fellow blue-chip Hewlett-Packard was bid 1.8 percent higher on $0.70 run to $39.58 as analysts raised earnings forecasts ahead of the companies fiscal fourth quarter results.
In the Treasuries market the mixed data left the liquid debt instruments trading near par by 17:10 GMT. The ten-year note rose 1/32nd to 101-28 with yields unchanged at 4.631. T-bonds yields were also unmoved as face value similarly edged 1/32nd higher to 96-14.
