Markets Ignore Eco Data on Tuesday

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On Tuesday, markets and traders were distracted by the marquee event, the testimony of the Federal Reserve Chairman, Ben Bernanke, in front of the US congress. New flow was centered on this event and markets positioned and repositioned themselves exclusively in preparation for this statement.

The day, actual had some interesting eco data that was ignored by traders.

Let’s take a look at yesterday’s economic releases:

After falling sharply in May, US CPI inflation stabilized in June. The annual rate of inflation stabilized at 1.7% Y/Y, the lowest level since early 2011, while the consensus was looking for a further decline to 1.6% Y/Y. On a monthly basis, CPI stayed unchanged in June, as lower prices for energy (-1.4% M/M), transportation (-0.7% M/M), utilities & fuels (-0.3% M/M) and commodities (-0.2% M/M) were offset by higher prices for food (0.2% M/M), apparel (0.5% M/M), medical care (0.6% M/M), recreation (0.3% M/M) and education & communication (0.1% M/M). As price declines were mainly based in energy, core CPI rose by 0.2% M/M in June, in line with expectations. The annual rate of core inflation dropped slightly, from 2.3% Y/Y to 2.2% Y/Y, but remains significantly above the headline rate of inflation. After the sharp slowdown in inflationary pressures, the stabilization is no surprise as lower prices for energy due to the decline in the oil price was offset by higher prices for some core components.

Industrial Production rose by 0.4 percent in last month with respect to decline of 0.2 percent in May. National Association of Home Builders (NAHB) Housing Market Index rose by 6 points to 35-mark in July as against previous level of 29 in prior month.

The US Dollar Index (DX) declined 0.1 percent in yesterday’s session owing to expectation that Federal Reserve policy makers of US might hint for further monetary easing in the days to come to boost the economic health of the world’s largest economy . 

US equities rose in the early part of the session but no specific action taken led stocks to remain range bound towards the end. The currency touched a low of 83.03 and closed at 83.17 on Tuesday.

The Euro appreciated by 0.2 percent on account weakness in the DX. The currency touched an intraday high of 1.2306 in yesterday’s session and closed at 1.2293. However, unfavorable economic data from the region restricted sharp upside in the currency.

German ZEW Economic Sentiment further declined to -19.6-mark in July as against previous decline of 16.9-level in June. European ZEW Economic Sentiment further decline to -22.3-level in current month from earlier decline of -20.1-mark in last month. Last month, the German ZEW indicator posted its biggest monthly drop since October 1998, the softer drop this month might be an indication that the decline is starting to flatten out. Last month, also the euro zone PMI’s showed early signs of bottoming out, suggesting that the situation might start to improve somewhat in the second half of the year.

Nevertheless, the significant weakening in the current assessment index suggests that the German economy is still facing significant headwinds.

UK’s Consumer Price Index (CPI) declined to 2.4 percent in June as against a previous level of 2.8 percent a month ago. Retail Price Index (RPI) was at 2.8 percent in last month from 3.1 percent in May. Core CPI declined marginally to 2.1 percent in June as compared to previous rise of 2.2 percent in May. House Price Index (HPI) was at 2.3 percent in May with respect to 1.4 percent in previous month.

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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