Events to watch – minutes from BoE
Wednesday, August 18, 2010
, Posted by Usman Ali Minhas at 2:13 AM
Output on the rise…
Three lackluster trading sessions on Wall Street were followed by a buying spree yesterday, after investors were delighted with industrial output data which came on top of decent reports from Wall Mart. Output rose by a solid 1% m/m, following a small contraction in June (-0,1%) and against expected 0,5% m/m. Moreover, capacity utilization rate increased from 74,1% to 74,8%. The industrial output data on top of better-than-expected ISM for July indicate no sudden stop in activity in the US economy. On the other hand, this kind of the data has a limited predictive power at the moment, since the momentum of recovery relies mostly on the labor market and consumer confidence. Additionally, one should note that while output rose by ca. 8% annually for the third straight month it is still at the level from November of 2004. Such deep was a dent of the recent recession.
…but housing still weak
A majority of investors do realize that the housing market is going to be a drag on the US economy and therefore lackluster data on starts (550k) and permits (570k) – the worst report since Nov’09 – didn’t provoke any serious reaction. The line of thinking is that the market hit a hard bottom around a level 50% below mid-08 numbers and 75% below peak years 2004-06.
Then again, it’s not like the issue is totally forgotten and a conference on Fannie Mae and Freddie Mac is a proof here. It seems like the government backed by a financial industry doesn’t want to give up on a further stimulus for the market. Even if it means more anomalies and more intervention in a free market demand-supply mechanism, the US authorities will choose possible short-term benefits of higher consumption and possibly a stronger recovery. With the Fed’s stance it means a higher chance for a bull-market for a while and another crash at the end of the road.
Events to watch – minutes from BoE
After a cluster of data received yesterday (mostly from the US), a calendar for Wednesday is unusually empty. Actually, the only event on the global markets is the release of the Bank of England’s minutes from the last meeting (4.30 ET; 10.30 CET). Any hint at monetary expansion may further hurt the GBP, which is already under technical pressure, as it attempts to defend the support zone of 1,5470-1,5520 (GBPUSD).
