Monday, May 19, 2008

Dollar Rebounds Versus Most Majors After Leading Indicators Edge Higher, Monday, May 19, 2008 10:51:14 AM

The dollar stormed back to the upside versus most majors Monday morning after the Conference Board released its report on leading economic indicators in the month of April, showing that its leading indicators index experienced a modest increase for the second consecutive month.

The report showed that the leading index edged up 0.1 percent in April, matching the increase that was seen in March. Economists had been expecting the index to come in unchanged.

The dollar rebounded from a two-week low against the euro, rising more than a penny to 1.55. The dollar jumped to 104.50 versus the yen and to 1.9470 against the euro.

The buck failed to gain much traction against the surging Canadian loonie, staying near this morning`s 2-month low of .99. The loonie has rallied lately as the price oil has risen to new record highs above $127 a barrel.

Leading Indicators Index Shows Second Consecutive Monthly Increase, Monday, May 19, 2008 10:46:41 AM

Monday morning, the Conference Board released its report on leading economic indicators in the month of April, showing that its leading indicators index experienced a modest increase for the second consecutive month.

The report showed that the leading index edged up 0.1 percent in April, matching the increase that was seen in March. Economists had been expecting the index to come in unchanged.

`These data certainly reflect a weak economy but not one in recession,` said Ken Goldstein, Labor Economist at The Conference Board. `Moreover, the small increases in the Leading Index in both March and again in April could be a signal that the economy may not weaken further.`

The modest increase by the index came as positive contributions from the interest rate spread and housing permits more than offset sharp declines in average weekly hours and consumer expectations.

The Conference Board noted that the weaknesses among the leading indicators have become somewhat less widespread in the last two months.

The report also showed that the coincident index was unchanged in April, while the lagging index edged up 0.1 percent.

The continued lack of growth by the coincident index comes as gains in personal income less transfer payments and real manufacturing and trade sales were offset by declines in industrial production and employment.

At the same time, the modest increase by the lagging index reflected positive contributions from commercial and industrial loans outstanding, the change in CPI for services, and the ratio of consumer installment credit to personal income.

While the Conference Board`s leading indicators index is largely regarded as old news because much of the data contained in the report has already been released, the second consecutive monthly increase may still generate some optimism about the strength of the economy.

Dollar steadies after losing ground to majors, Monday, May 19, 2008 7:11:52 AM

The dollar hit the skids against other major currencies in early action Monday morning in New York, but was able to pare its losses despite lingering concerns about the health of the US economy.

With little economic data set for release on Monday, market players will be looking ahead to this week`s FOMC minutes from the April monetary policy meeting, April PPI, home price index and existing homes sales data.

At 10 am ET, April`s leading indicators will be released, which are expected to slip 0.1% following March`s 0.1% rise.

The dollar was little changed in choppy dealing against the euro approaching 7 am ET Monday. The buck dropped to a 2 1/2 week low of 1.5630 before fighting back to 1.5575. European Central Bank President Jean Claude Trichet told the BBC that, while the current situation was challeging, high inflation `will not last forever.`

The buck came under modest pressure in early dealing against the yen, easing to 103.65 before bouncing back to 104.10. The Bank of Japan kicked off its regular two-day monetary policy meeting on Monday, headlining Monday`s economic news in Asia. The BoJ is scheduled to announce its interest rate decision sometime Tuesday morning, widely expected to keep rates at 0.50 percent.

Traders also considered data showing that Japan`s nationwide department store sales fell at a faster pace of 3.4% year-on-year in April, compared to a decrease of 1.2% in March.

The greenback dropped to a 2-week low of 1.9623 before reversing its early losses to trade at 1.9560 approaching mid-morning. Asking prices for houses in Great Britain increased 1.2 percent in May from the month before, according to a report issued Monday by RightMove.

The group warned that the figures do not indicate a return to a positive housing market, pointing out that the national averages were pushed higher by `discretionary spring sellers` of large properties in the southeast section of England, where prices rose 4.2 percent in May.

The dollar stayed on the defensive against the loonie in subdued dealing Monday morning, slipping to a 2-month low of .9924. Markets in Canada are closed for Victoria Day.

US stocks looking for direction Monday morning, Monday, May 19, 2008 6:34:49 AM

US stocks were poised for a lackluster open Monday morning as Microsoft made new overtures to Yahoo and oil prices stayed near record highs. With little economic data set for release on Monday, market players will be looking ahead to this week`s FOMC minutes from the April monetary policy meeting, April PPI, home price index and existing homes sales data.

Stocks were little changed on Friday as sentiment dampened due to high oil prices and a report showing that US consumer sentiment plunged to a 28 year low in May.

Despite having walked away from acquisition talks with Yahoo! (YHOO), Microsoft (MSFT) has been carrying on low-profile discussions on a relationship between the two internet giants.

Microsoft issued a statement Sunday saying it `is considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo but not an acquisition of all of Yahoo!`

Yahoo`s refusal to accept Microsoft`s un-written $33 dollar-per-share offer for the company led to a move by activist investor and Yahoo stakeholder Carl Icahn to launch a hostile bid to replace the company`s CEO and board of directors.

In other merger news, Manitowoc Co., Inc. (MTW) on Monday announced a higher offer of about $2.4 billion for UK-based kitchen equipment firm Enodis Plc (ENO.L), as it strives to expand its share in the ice-machine market.

The dollar was on the defensive versus other majors Monday morning, slipping to a 2 1/2 week low of 1.5630. At 10 am ET, April`s leading indicators will be released, which are expected to slip 0.1% following March`s 0.1% rise.

The price of light sweet crude was down $0.19 at $126.10, staying near its record highs despite comments from a Saudi oil official indicating the nation has boosted oil output by 300,000 barrels per day to meet demand.

Sunday, May 18, 2008

OFHEO`s Lockhart Promotes Increased Regulatory Power, Friday, May 16, 2008 4:01:26 PM

The Office of Federal Housing Enterprise Oversight`s managing director James Lockhart discussed the lessons that housing GSEs Fannie Mae (FNM) and Freddie Mac (FRE) `must learn` from the current market turmoil, expressing his support for legislation what would allow for the OFHEO to increase its regulatory powers.

Lockhart spoke Friday at the Chicago Federal Reserve`s 44th annual Banking Structure Conference.

Fannie Mae and Freddie Mac have performed their role of supporting the loan market `reasonably well` throughout the financial turmoil, Lockhart said. However, he added that the GSEs have `many` lessons to learn, some which admittedly `should have been learned already.` Specifically, Lockhart acknowledged that Fannie and Freddie ignored the lesson learned from previous bubbles, `what goes up to far goes down too far.`

`The lack of transparency all along the long chain of mortgage financing is, in retrospect, mystifying,` Lockhart said.

He added that `complicated, risky mortgages` shouldn`t be marketed to people who don`t understand them, a lesson that `unfortunately` was not learned in the mortgage industry.

Fannie and Freddie `have continued to be a point of vulnerability for the financial system` due to the fact that they are highly leveraged compared to their risks, Lockhart noted.

`Such leverage has also limited the ability of Fannie Mae and Freddie Mac to fulfill their mission of supporting secondary mortgage market stability and liquidity in good times and bad,` he said.

The OFHEO has taken a series of actions in order to better balance the ability of Fannie and Freddie to be a lender of last resort, and to limit the risk that these GSEs pose to both taxpayers and the financial system, Lockhart said. In March, the OFHEO removed regulatory caps on the two GSEs, and a few weeks later it lowered their minimum capital requirements by 10 percent. Last week, the OFHEO lifted its consent order with Fannie Mae, although it has not yet done so for Freddie Mac.

Fannie and Freddie`s `very high leverage made striking that balance quite a challenge,` Lockhart said. However, he noted that the actions related to the two GSEs along with the rescue of Bear Stearns and the Fed`s use of the term auction facility other liquidity aids `had the desired effect of quickly reducing MBS-to-Treasury spreads,` although he added that they are still higher than market spreads prior to the crisis by 100 basis points.

Lockhart was critical of the risk-based capital requirement that Fannie and Freddie are required to have, saying it is `pretty much a joke at this point,` because it is set by law and is therefore inflexible.

He cautioned that a recent effort by Fannie and Freddie to alleviate recent losses by tightening their underwriting standards `could tend to be pro-cyclical and exacerbate the current weakness in housing and mortgage markets, if taken to extremes.`

Lockhart concluded his remarks by voicing his support for current legislation in Congress that would expand the OFHEO`s regulatory powers.

`The legislation that is working its way through Congress would give the new GSE regulator broader powers and increased flexibility to ensure the safety and soundness of Fannie Mae and Freddie Mac and to apply the lessons I have enumerated,` Lockhart said, `Especially efforts to encourage the Enterprises` mission to support mortgage and housing markets throughout the credit cycle.`

The Senate is scheduled to vote on the legislation on Tuesday.

Crude Oil Closes Above $126, Friday, May 16, 2008 3:43:36 PM

Crude oil closed above the $126 a barrel mark on Friday and again added to its record levels. Light sweet crude closed at $126.29, up $2.17 on the day. Oil touched a record high of $127.82 in the early going before easing back slightly. On Friday, Goldman Sachs boosted its forecast to $141 a barrel in the second half of this year.

Amid choppy trading, oil closed the week up by 33 cents after adding more than $10 last week. Crude closed modestly lower on Thursday after hitting a weekly low earlier in the session and fell on Wednesday. Trading took place earlier in the week as the Energy Information Administration revealed that crude oil inventories increased by 176,000 barrels to 325.8 million barrels. Analyst predicted an increase of about 2 million barrels.

Stochastics and the RSI indicated neutral status the June contract, which expires on Tuesday. The $130 may serve as psychological resistance if the rally continues. If June turns lower, the $120.75 mark could be a resistance point.

In economic news, Department of Commerce data showed that housing starts jumped 8.2 percent to an annual rate of 1.032 million units in April from the revised March rate of 954,000 units. Economists had expected starts to edge down to 940,000 units from the 947,000 unit rate originally reported for the previous months.

Traders also considered the release of a report showing that US consumer sentiment dropped to its lowest since 1980. The University of Michigan/Reuters consumer sentiment number came in lower than expected at 59.5, compared 62.6 in April.

Dismal Consumer Confidence Reading Weighs On Dollar, Friday, May 16, 2008 2:59:10 PM

The dollar hit the skids against other major currencies on Friday as the release of a report showing that US consumer sentiment dropped to its lowest since 1980 overshadowed a relatively encouraging reading on the housing situation.

The Reuters/University of Michigan Surveys of Consumers said its preliminary index of confidence fell to 59.5 in May, down from 62.6 in April. This was well below economists` median expectation of a reading of 62.0.

The dreadful consumer confidence reading overshadowed data showing that housing starts unexpectedly showed a significant increase in the month of April, according to a report released by the Department of Commerce. The data is likely to offset some of the recent pessimism about the outlook for the housing market.

The report showed that housing starts jumped 8.2 percent to an annual rate of 1.032 million units in April from the revised March rate of 954,000 units. Economists had expected starts to edge down to 940,000 units from the 947,000 unit rate originally reported for the previous months.

The greenback fell to a 2-week low against the euro, dropping to 1.5601 before levelling off aver the course of the afternoon. With the retreat, the dollar moved further away from a 2-month high of 1.5283.

The Eurostat announced that Euro zone trade balance with the rest of the world showed a deficit of EUR2.3 billion in March. In February, the trade balance recorded a surplus of EUR0.8 billion. Economists had expected the trade surplus to increase to EUR2.5 billion in March.

The buck dropped sharply against the yen in Friday morning, but pared a good portion of its losses by mid-afternoon. The buck slipped to 103.50 before bouncing back to 104.15. Even with the loss, the dollar gained a bit of ground this week.

Japan`s economy grew 0.8 % in the first quarter over the previous quarter on strong exports. That was up from the 0.6% increase in the previous quarter, and it beat analyst expectations that called for a 0.7% quarterly increase. On an annual basis, GDP was up 3.3%.

The dollar was also on the back foot against the sterling, slipping to 1.96 from an early level near 1.9450. The dollar has eased since hitting a multi-month high of 1.9362.

The greenback snapped back from a 9-week low of .9942 versus the loonie, rebounding back above parity by 3 pm ET. The buck came under pressure in late morning dealing after the price of oil jumped to a new record above $127.

Gold Soars Towards $900 An Ounce, Friday, May 16, 2008 2:41:16 PM

The price of gold surged higher for the second straight session and moved to its highest level in more than three weeks. June gold closed at $899.90, up $19.90 for the session. The precious metal touched as high as $905.60 in mid-day trading.

Gold closed the volatile week up $14.10 an ounce. The metal added to its gains from Thursday, when it added $13.50 on the session. Prices had dropped to a 12-day low on Wednesday and closed down $3.10 on the day. Bullion plunged by $20.90 on Tuesday. Last week, the metal added $27.80 an ounce after seeing weakness in the previous week.

Stochastics and the RSI continued to indicate neutral status for June gold. The next upward target is $909.30, the high crossing of April 24. The next downward target is $858.70, the low crossing of May 5.

In economic news, housing starts unexpectedly showed a significant increase in the month of April, according to a report released by the Department of Commerce on Friday, with the data likely to offset some of the recent pessimism about the outlook for the housing market. The report showed that housing starts jumped 8.2 percent to an annual rate of 1.032 million units in April from the revised March rate of 954,000 units. Economists had expected starts to edge down to 940,000 units from the 947,000 unit rate originally reported for the previous months.

Traders also considered the release of a report showing that US consumer sentiment dropped to its lowest since 1980. The University of Michigan/Reuters consumer sentiment number came in lower than expected at 59.5, compared 62.6 in April.

Also impacting gold`s hedge value was the rising cost of crude oil, which soared past the $127 mark and again extended its record high.