Mixed Signals Leave Investors Wondering Over the Outlook
International Trading
THE TECHNIQUE OF GIVING A GOOD MASSAGE
14 years ago
Saturday, September 18, 2010
, Posted by Usman Ali Minhas at 1:07 PM
The data released from the United States throughout this past week provided investors with mixed signals over the outlook, where rising retail sales provided some optimism among investors, yet deteriorating activity in the manufacturing sector left investors with huge uncertainty over the outlook for the world’s largest economy.
The retail sales for the month of August rose above expectations and rather improved compared to July, where despite elevated unemployment and tightened credit conditions; consumers continue to spend over a moderate pace, which could prove vital to the progress of the recovery, since spending accounts for nearly two thirds of economic activity in the U.S. economy, and retail sales account for more than half of consumer spending.
Meanwhile, the manufacturing sector seems to be still struggling to reach stability, as manufacturing data released this week signaled activity in the manufacturing sector eased in September, where the Empire manufacturing index eased, while the Philadelphia Fed index contracted, as this clearly indicates that the manufacturing sector is still struggling to recover from its worst slump since the early 1980s.
The manufacturing sector started to expand almost a year back, and while this expansion was highly welcomed by markets, yet weak demand levels from all around the globe continue to weigh down on manufacturing activities, though we should witness a rise in manufacturing activities rather soon, as conditions continue to stabilize, though manufacturing activity will need until next year to reach full stability.
Industrial production rose in August, which represents yet another sign of the improvement witnessed in the third quarter, especially in August, while capacity utilization, which is an inflationary gauge for how much resources are being used by factories, increased slightly in August, yet the index continues to signal the elevated slack levels in economic activities.
Meanwhile, the import price index signaled prices increased in August, however, the producer price index and the consumer price index both signaled that prices remained rather stable, where both headline and core annualized inflation eased or remained unchanged in August.
The outlook for inflation remains well anchored according to the Federal Reserve Bank, where the Fed continued to highlight over and over again that inflation is expected to remain “subdued for some time,” while inflation expectations also remain stable, and that is providing the Fed with the needed space to focus on reviving economic growth through an aggressive Dovish stance.
The FOMC will meet next week to decide whether or not the economy needs further stimulus, where some expectations started to surface throughout this past week that the Fed might undertake further quantitative easing in order to support economic growth, but if Bernanke’s speech at Jackson Hall is any guide; we shouldn’t really expect any further easing, since Bernanke signaled that current conditions don’t warrant more easing, though in the near future the Fed might take further easing measures if the recent slowdown continues.
The consequences of such expectations by markets led the U.S. dollar to lose ground against most of its major counterparts except the Yen, since Japan’s decision to intervene in currency markets by selling Yens and buying Dollars forced the Yen to drop against majors currencies, while the dollar lost momentum against other majors amid expectations that the Fed will undertake further quantitative easing next week at their FOMC meeting.
Stocks on the other hand fluctuated throughout this week amid the mixed data released from all around the globe, where beside the mixed data released from the U.S., Germany, China, and the U.K. dominated global markets as well, which led stock markets all around the globe to fluctuate heavily.
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