Hi all,
As forex traders, we know how financial news releases can shake up a market. Usually the price action makes common sense, but when the market (DOW or currencies) move the opposite direction one would expect, then the financial "analysts" have to have something to say, right??
I have to laugh sometimes at the absurdity of some of the news analysis the comes over the wires. I know it's no easy task to explain why the market does what it does, but sometimes it's just patently clear that the analyst is grasping at straws, trying to explain why the market did the opposite of what he/she would have predicted. This after-the-fact ("apriori") analysis isn't analysis at all but pure observation.
Today, at 10AM EST, the USD news "Pending Home Sales m/m" was released. The current month's news was bad, well below expectations, coming in at -2.6% vs. -0.7%. Ordinarily, you would expect the DOW to fall on such bad news yet it rose, prompting this explanation on http://finance.yahoo.com :
========
Stocks Rise After Poor Housing Data
Tuesday January 8, 10:46 am ET
By Madlen Read, AP Business Writer
Stocks Up After Report Indicates Drop in Pending Home Sales, Bolstering Argument for Rate Cut NEW YORK (AP) -- Wall Street advanced Tuesday, trying to rebound from a dismal start to 2008 as investors bet that new housing data will give the Federal Reserve more reason to cut interest rates.
...
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Oh but wait!!! By 12PM EST, the Dow had reversed and fallen, leading to the next brilliant analysis release:
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Stocks Dip on Housing Industry Woes
Tuesday January 8, 12:37 pm ET
By Madlen Read, AP Business Writer
Stocks Slip After Reports Indicate Drop in Pending Home Sales, Problems at Countrywide, KBHome NEW YORK (AP) -- Wall Street turned lower Tuesday, giving up early gains as investors still hoping for an interest rate cut struggled with the ongoing fallout from the mortgage and credit crisis and the possibility of further troubles at lenders like Countrywide Financial Corp.
The National Association of Realtors said Tuesday its index tracking pending U.S. home sales fell 2.6 percent in November, a larger decline than the market expected. The housing market has been the main drag on the economy recently, and is one indicator the central bank is watching to gauge the likelihood of a recession.
The home sales report followed last week's disappointing readings on employment and manufacturing. The stock market has been attempting to recover from sharp losses in the first few days of trading in 2008 on the expectation that the Fed will continue its campaign of rate cuts to prevent the U.S. economy from slipping into a downturn.
But jitters about Countrywide, which Lehman Brothers said has seen a "dramatic decline" in earnings power, and KB Home, which posted a disappointing fourth quarter loss, kept Wall Street on edge.
...
============
To me, the Housing Data was bad... so why did the market rise? Probably because of the huge adjustment in the PREVIOUS month's data that more than offset the latest month's shortfall.
Prior to release:
Expected this month: -0.7%
Previous month reported: 0.6%
Actual, this month: -2.6% (in other words, -1.9% further below expectations)
Previous month adjusted: 3.7% (a positive change of 2.1%)
If this month's expectation was -0.7%, the NET effect of today's news plus the correction was a +0.2% above expectations, as if it were "-0.5%". That would be my guess as to why the market's initial reaction was favorable. IMO, pulling out the "hoping for rate cuts" card is another way for analysts to say "I have no idea why it went up but it did."
Pips4life
As forex traders, we know how financial news releases can shake up a market. Usually the price action makes common sense, but when the market (DOW or currencies) move the opposite direction one would expect, then the financial "analysts" have to have something to say, right??
I have to laugh sometimes at the absurdity of some of the news analysis the comes over the wires. I know it's no easy task to explain why the market does what it does, but sometimes it's just patently clear that the analyst is grasping at straws, trying to explain why the market did the opposite of what he/she would have predicted. This after-the-fact ("apriori") analysis isn't analysis at all but pure observation.
Today, at 10AM EST, the USD news "Pending Home Sales m/m" was released. The current month's news was bad, well below expectations, coming in at -2.6% vs. -0.7%. Ordinarily, you would expect the DOW to fall on such bad news yet it rose, prompting this explanation on http://finance.yahoo.com :
========
Stocks Rise After Poor Housing Data
Tuesday January 8, 10:46 am ET
By Madlen Read, AP Business Writer
Stocks Up After Report Indicates Drop in Pending Home Sales, Bolstering Argument for Rate Cut NEW YORK (AP) -- Wall Street advanced Tuesday, trying to rebound from a dismal start to 2008 as investors bet that new housing data will give the Federal Reserve more reason to cut interest rates.
...
========
Oh but wait!!! By 12PM EST, the Dow had reversed and fallen, leading to the next brilliant analysis release:
========
Stocks Dip on Housing Industry Woes
Tuesday January 8, 12:37 pm ET
By Madlen Read, AP Business Writer
Stocks Slip After Reports Indicate Drop in Pending Home Sales, Problems at Countrywide, KBHome NEW YORK (AP) -- Wall Street turned lower Tuesday, giving up early gains as investors still hoping for an interest rate cut struggled with the ongoing fallout from the mortgage and credit crisis and the possibility of further troubles at lenders like Countrywide Financial Corp.
The National Association of Realtors said Tuesday its index tracking pending U.S. home sales fell 2.6 percent in November, a larger decline than the market expected. The housing market has been the main drag on the economy recently, and is one indicator the central bank is watching to gauge the likelihood of a recession.
The home sales report followed last week's disappointing readings on employment and manufacturing. The stock market has been attempting to recover from sharp losses in the first few days of trading in 2008 on the expectation that the Fed will continue its campaign of rate cuts to prevent the U.S. economy from slipping into a downturn.
But jitters about Countrywide, which Lehman Brothers said has seen a "dramatic decline" in earnings power, and KB Home, which posted a disappointing fourth quarter loss, kept Wall Street on edge.
...
============
To me, the Housing Data was bad... so why did the market rise? Probably because of the huge adjustment in the PREVIOUS month's data that more than offset the latest month's shortfall.
Prior to release:
Expected this month: -0.7%
Previous month reported: 0.6%
Actual, this month: -2.6% (in other words, -1.9% further below expectations)
Previous month adjusted: 3.7% (a positive change of 2.1%)
If this month's expectation was -0.7%, the NET effect of today's news plus the correction was a +0.2% above expectations, as if it were "-0.5%". That would be my guess as to why the market's initial reaction was favorable. IMO, pulling out the "hoping for rate cuts" card is another way for analysts to say "I have no idea why it went up but it did."
Pips4life