This might explain why the market was happy today even though all news was bad.
Speculation of another interest rate hike.
Dollar Weakness Resumes as Housing and Confidence Deteriorates
The sell-off in the US dollar resumed sooner than we had initially anticipated on the heels of surprisingly weak economic data. Consumer confidence slipped to 5 year lows as house prices tumbled more than 10 percent. Despite the increase in existing home sales, the housing market remains very weak. Sales only increased because bargain hunters were scouring the inventory for foreclosures. The weakness in the housing market spells more trouble for the US economy and the US dollar because consumers are now dealing with the triple blow of falling housing market values, a deteriorating labor market and rising prices. If we do not see a rise in both the average price of new home sales as well as the amount of homes sold, the Federal Reserve may have no choice but to step up the gas on lowering interest rates. In addition to the housing market numbers, durable goods are also due for release. Believe it or not, the futures curve is pricing in a 45 percent chance that the Fed funds rate will be at 2percent by the end of August. This means that they expect the Federal Reserve to slow down significantly with their next rate cut possibly being their last. We believe that this is overly optimistic because the labor market in the US should deteriorate even further over the next few months. Over the past two weeks, we have had layoff announcements from Citigroup and Goldman Sachs. The NY Times is reporting that another 20,000 jobs could be cut in the high-paying financial sector over the next 2 years. CNBC expects Bear Stearns to cut 50 percent of its 14,000 large workforce. We are not going to speculate about the extent of the layoffs, but this does agree with our overall view that the labor market will get worse before it gets better. The statistic that we have been quoting for some time is from 2001 and 2002, when the US economy endured 15 consecutive months of negative job growth. In many ways, the US economy faces bigger risks now than it did a few years ago and for that reason a third month of negative non-farm payrolls is not only possible but probable.
Speculation of another interest rate hike.
Dollar Weakness Resumes as Housing and Confidence Deteriorates
The sell-off in the US dollar resumed sooner than we had initially anticipated on the heels of surprisingly weak economic data. Consumer confidence slipped to 5 year lows as house prices tumbled more than 10 percent. Despite the increase in existing home sales, the housing market remains very weak. Sales only increased because bargain hunters were scouring the inventory for foreclosures. The weakness in the housing market spells more trouble for the US economy and the US dollar because consumers are now dealing with the triple blow of falling housing market values, a deteriorating labor market and rising prices. If we do not see a rise in both the average price of new home sales as well as the amount of homes sold, the Federal Reserve may have no choice but to step up the gas on lowering interest rates. In addition to the housing market numbers, durable goods are also due for release. Believe it or not, the futures curve is pricing in a 45 percent chance that the Fed funds rate will be at 2percent by the end of August. This means that they expect the Federal Reserve to slow down significantly with their next rate cut possibly being their last. We believe that this is overly optimistic because the labor market in the US should deteriorate even further over the next few months. Over the past two weeks, we have had layoff announcements from Citigroup and Goldman Sachs. The NY Times is reporting that another 20,000 jobs could be cut in the high-paying financial sector over the next 2 years. CNBC expects Bear Stearns to cut 50 percent of its 14,000 large workforce. We are not going to speculate about the extent of the layoffs, but this does agree with our overall view that the labor market will get worse before it gets better. The statistic that we have been quoting for some time is from 2001 and 2002, when the US economy endured 15 consecutive months of negative job growth. In many ways, the US economy faces bigger risks now than it did a few years ago and for that reason a third month of negative non-farm payrolls is not only possible but probable.
Blogging daily now at www.volume.zone