Forex Market Outlook 11/22/11
It’s a slow day in the marketplace this morning and we’re seeing a bit of a rebound after yesterday’s sell-off. The “Super-Failure” of the debt reduction committee was extremely disappointing to the markets yesterday, though it always baffles me how the markets could have thought they could succeed in the first place as it was set up to fail.
However the markets got an early pop as the fear of another US credit rating downgrade never materialized as the ratings agencies re-affirmed the current level despite the failure to act. This basically is setting up for a year-long battle of blame-game politics heading into the 2012 elections. I just may have to throw away my TV.
Despite the failure though not much has changed for the average American who is slowly seeing their prospects of a better life diminished. Automatic cuts will be made to the deficit, though they come largely from defense spending and domestic programs, like education. So now we are less safe and dumber to boot—just awesome!
But seriously, economic conditions slowly continue to deteriorate and the 3Q GDP figure (revised) came in this morning and was revised lower to 2% from an expected 2.5%. That is a huge miss and indicative that the economy is not getting better but worsening. Personal consumption figures came in slightly lower than expected at 2.3% vs. 2.4%.
Later today the Fed minutes will be released which should show a continued willingness to ease monetary policy. With today’s floundering GDP figure, that easing could come much sooner than expected.
Other news on the docket showed that the budget deficit in the UK came in lower than expected due largely in part to the government austerity measures. However with that austerity, economic activity has decreased and we will know just how far on Thursday when the UK reports their GDP figures. Tomorrow though we will get the release of the minutes from the BOE rate policy meeting which will show just how dovish they have become in light of the expectations for economic growth and the stubbornly high 5% inflation they have in the UK.
In Canada, retail sales figures for last month came in better than expected posting a gain of 1% vs. an expectation of .5%.
And not to forget about our friends in Europe, bond yields continue to rise (especially in Spain where they had to pay double the yield on short-term debt) and there is now concern that France could be close to a credit rating downgrade. Germany continues to back away from the idea that the ECB needs to become the lender of last resort which may be the only hope the Euro zone has to remain in its current form.
So what started out as a mild risk-taking morning has reversed course and is leaning back toward risk aversion after the horrible GDP figures that were reported here in the US. Perhaps the Fed minutes can save the day for market bulls later today but it is unlikely that Bernanke can be any more dovish than the market expects him to be.
With the Thanksgiving holiday a few days away, there is seemingly little in the economy or in the government to be thankful for. Perhaps the only thing to be thankful for is that 2012 is an election year and we can vote them all out office.
That and that Europe has imploded yet.