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Durable Goods/New Home Sales and the $
We could see a very interesting equity and currency market reaction if both of these reports print in the same direction. Two weeks ago after some really bad retail sales numbers printed, there was a curious reaction in the equity markets-they actually went UP on the bad news. Why? Because at that time, bad news indicated to the market that a rate cut could be a possibility. Carry trades were bought into as the dollar weakened vs the Pound and Euro and strengthened vs the Yen. Markets have accepted the fact that there will be no rate cut at least thru the third quarter. Fed Funds Futures trading shows that an August cut has been nearly completely priced out of the market. This is also being reflected in the 2yr-10yr spread in US Teasuries, which had been inverted for so long. Remember all the talk about how inverted yeild curves preceeded recessions? No one's talking recession now, except the guy that runs that "Doom and Gloom" website. Markets are really stretched out now. Things are starting to look a bit expensive. While no one is predicting a crash, there has to be a bit of nervous caution in the air. That's why I believe there's a good chance that if both reports print negative, equities will have a bit of a sell-off and with an equity sell-off comes the possibility of some carry trade unwinding. As we've seen before, when carry trades unwind the dollar [I]appreciates[/I] vs the GBP and EUR while [I]depreciating[/I] vs the Yen as GBP/JPY and EUR/JPY get sold off. If both reports beat the consensus by a nice amount-equity markets will likely take off and very possibly the carry trades will too. The dollar will [I]depreciate[/I] vs the GBP and EUR while it [I]appreciates[/I] vs the Yen as GBP/JPY and EUR/JPY are bought into.
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- Comment #1
- May 23, 2007 10:26pm May 23, 2007 10:26pm
- Circafx
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- May 24, 2007 6:42am May 24, 2007 6:42am
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- May 24, 2007 7:39am May 24, 2007 7:39am
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- Edited 8:52am May 24, 2007 8:40am | Edited 8:52am
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- May 24, 2007 8:53am May 24, 2007 8:53am
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- May 24, 2007 10:15pm May 24, 2007 10:15pm
- Circafx
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