Mark Whistler is the founder of www.WallStreetRockStar.com and is the author of multiple books on trading. Mark's newest book, The Swing Trader's Bible - co-authored with CNBC/Fox News regular guest Matt McCall - will be on shelves in late summer, 2008. In addition, Mark also writes regularly for TraderDaily.com and Investopedia.com.
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1. Hoenig Inflation Comments Boost Dollar
The News:
On Tuesday, Kansas Federal Reserve President Thomas Hoenig made specific comments towards inflation - and the potential need for rate hikes - to an audience in Denver, Colorado.
The Breakdown:
Bloomberg news reported, "A sharp slowdown in growth has put the economy at the brink of a recession while, at the same time, rising commodity prices have caused inflation pressures to rise considerably," Hoenig said to the Economic Club of Colorado.
Clearly, Hoenig's comments made a direct impact on the dollar, which rebounded sharply against most majors overnight. On the heels of Hoenig's comments, the euro had lost almost 150 PIPs by mid morning Wednesday.
The present situation is similar to the same types of comments from ECB members a few weeks ago that pushed the U.S. Dollar to lows.
The Bottom Line:
Central bank members and Fed Presidents undoubtedly know their comments will move currencies. In fact, much of the volatility in the euro and U.S. Dollar lately can be tracked almost precisely, to where comments to the press were inserted by Fed Reserve and ECB members. The simple fact of the matter is that policymakers have an agenda.
2. Productivity and Costs Report Shows Little Inflation
The News:
On Tuesday, non-farm business productivity growth exceeded expectations, posting a 2.2% gain quarter over quarter.
The Breakdown:
Overall, productivity growth increased across the board, indicating that the U.S. might not be headed for a recession after all. It's too early to tell whether productivity growth, coupled with stimulus checks will be key factors to economic recovery in the U.S. but the dark clouds are lifting slightly.
One point of note, there is a tug-of-war happening within the U.S. Dollar and the price of oil right now. In theory a strong dollar should help cool the price of oil slightly. However, given that oil is just off highs, one or the other will retrace recent steps in the coming days.
Thursday could add further upside pressure to the U.S. Dollar, if the ECB changes its language to indicate a rate cut on the horizon, given the slowing Euro area economy.
The Bottom Line:
The U.S. economy isn't completely out of the game just yet and the year could still see healthy GDP growth. Danger still lurks, but things could certainly be worse.
3. Pending Home Sales Improve Month Over Month
The News:
Headlines will tell you pending home sales are through the floor, but reading between the lines, something else is happening.
The Breakdown:
March pending home sales came in 20.1% over the same month one year ago - something headlines will likely be exploiting all day. However, pending home sales did improve over February, which witnessed a 22.1% drop year over year.
Month over month though, pending home sales declined from 83.8 to 83.0, which is the key "fear number†media is covering. Referring back to the above paragraph though, all areas of the United States witnessed lesser year over year declines in March, over February.
Pending home sales will likely continue to operate in the red for the next few months, as an all out recovery will likely take a considerable amount of time. However, as year over year numbers start to edge up, headlines will also improve.
The Bottom Line:
Tightened credit conditions will certainly make it tough for housing markets to recover, and hawkish comments from FOMC members clearly won't make the housing healing process any easier. However, real estate markets will eventually recover, potentially showing that late spring of 2008 was actually an ideal time to buy property in the U.S.
