Overlooked Eco Data Points to a Slowing Global Economy

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Markets closed lower on Tuesday, dented by concerns that markets have overplayed the chances of the ECB taking action to back up its pledge to support the euro. U.S Stocks closed out another quiet session with modest losses. Losses in Asia deepened on Wednesday as a softer Chinese manufacturing data further undermined the fragile market sentiment as expectations faded of stimulus action this week by the U.S. Federal Reserve and the European Central Bank.

As traders wait for the outcome of the two day FOMC meeting, with a statement due later today and Thursday meetings and statements from the ECB and the Bank of England, most speculators have over looked the economic data to pay closer attention to central banks. Currencies as well as precious metals have begun to fluctuate based on the hopes and prospects from the bankers.

Here is a rundown of the market events from yesterday that were overlooked:

Consumer spending in the U.S. stagnated in June as labor market weakness prompted Americans to use the biggest gain in incomes in three months to build savings.

U.S. Treasury Secretary Timothy F. Geithner said Europe is “absolutely committed to doing what’s necessary” to resolve the continent’s debt crisis, one day after meeting with German Finance Minister Wolfgang Schaeuble and European Central Bank President Mario Draghi.

China’s manufacturing teetered on the edge of contraction in July, adding to evidence Premier Wen Jiabao has yet to reverse the nation’s economic slowdown.

The euro remained higher against the dollar following an advance yesterday as optimism built that the European Central Bank will take steps at a meeting to stem the region’s debt crisis.

Eurozone inflation came in flat during July at 2.4% y/y, the third consecutive month during which CPI has stood still at 2.4%. Europe’s stable 2.4% y/y CPI prints contrast sharply with inflation trends globally

German consumer spending disappointed in June.  Retail sales fell a touch (-0.1%) versus expectations for a half point gain.  This is in inflation-adjusted terms, so it flows straight through to softness in consumer spending as measured within GDP accounts.  It is the third consecutive small monthly decline in retail sales, the fifth in the past six months, and the seventh in the past nine.  German exporters might be relatively resilient, but the German consumer has not been in a buoyant mood.

The yen strengthened against all its major peers as Asian stocks slid amid signs manufacturing is slowing across the globe, boosting demand for refuge assets. The yen is now trading at close to 78.00 to the USD which is upsetting the government and the economy of Japan.

Australia’s dollar weakened after a manufacturing index in China, the nation’s biggest trading partner, slid to the lowest level this year, sapping demand for the South Pacific nation’s assets.

Australian house prices unexpectedly rose in the three months through June, ending five straight quarters of declines, as lower interest rates lured buyers back into the market. 

Canada’s dollar posted a second monthly gain versus its U.S. peer as speculation the Federal Reserve and European Central Bank may extend liquidity operations spurred appetite for higher-risk currencies. Although Canadian GDP disappointed traders yesterday, it had little effect on the currency.

Federal Reserve Chairman Ben S. Bernanke will probably forgo announcing a third round of large- scale asset purchases this week, and is more likely to wait until September to unveil plans to buy $600 billion in housing and government debt, according to median estimates of economists in a Bloomberg News survey

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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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