Oil Jumps, Stocks Slide, Dollar Succumbs

When oil jumps, you can expect the US stock markets to react badly and the US dollar to succumb to shorting pressure from traders. At one point on Thursday, crude oil futures leaped more than $4 to above $138 a barrel after a slight retreat yesterday. US data released today didn’t give any strong indication of which way the US economy is going to head towards, and in any case, inflation numbers remained higher than what the Fed would like to see. US gross domestic product gained 1%, at an annual rate in the first quarter, the Commerce Department said Thursday in its third and final estimate, up from its previous estimate of a 0.9% increase, and that was largely expected by the markets. This upward revision was aided by stronger gains in consumption and exports, and showed that the US was able to hang onto its rope in the first three months of the year.

That said, Q1 was over, long over, and we are in the last days of Q2. Looking ahead, Q3 may show slight improvement as a result of the tax stimulus checks handed out by the government, but come Q4, all may come tumbling down. So while it’s all nice to praise the US economy based on today’s “quite ok” GDP data, the economy is still “on the brink of a recession” - quoting Greenspan’s words.

Inflation And Jobless Claims

It was reported today that the price index for personal consumption expenditures excluding food and energy rose 2.3%, at an annual rate. A little uncomfortably high, but presumably not that of an urgent matter for the Fed since they said yesterday that inflation is expected to moderate later this year and in 2009.

Initial claims for jobless benefits were unchanged at 384,000, and the four-week average got pushed up to its highest since October 2005. Continuing claims lasting more than one week surged 82,000 to 3,139,000, the highest level in more than four years. This data suggests that it is more difficult for the unemployed to find work.

Forex Trading

The dollar is again down against the Euro, Swiss franc, British pound and the Japanese yen today as traders continue to pare expectations of a rate hike by the Fed anytime soon. USD/CHF fell to the lowest in nearly three weeks, reaching an intraday low of 1.0250. Downside targets are around 1.0200-10, then 1.0170. EUR/USD rose to 1.5750, and bull targets are 1.5760, 1.5800.

Economic Calendar for Friday:

French GDP 0650 GMT

Eurozone current account 0800 GMT

UK GDP 0830 GMT

Eurozone consumer confidence 0900 GMT

US PCE deflator, personal spending, PCE core 1230 GMT

US U of Mich confidence 1400 GMT

Comments

[John Pseudonym]

>>>"US data released today didn’t give any strong indication of which way the US economy is going to head towards<<<&qu...

Hmm...

Did the data show an expanding manufacturing sector?

Record profits for banks?

A housing boom with double digit increases in year over year price?

Rapidly growing wages and falling prices?

Did it say anything to make us cheer?

Sometimes not saying anything says a lot...

[Dividend Growth Investor]

USO broke out of its consolidation today. Do you think that FXE would break out above its all time highs?

[Reinko]

Hello my lovely, did we have today a 140 US$ breach of the one barrel oil??????

In that case it coule be that the OPEC has opened a third oil trade center where folks can buy stuff at the expense of one yard wide US females.

Lets hope there are more oil markets out there but in the meantime I will always follow your lovely ways of thinking.

Oh Grace, you are my Queen.....

[Eagle-Chief]

Gracie - you state "US data released today didn’t give any strong indication of which way the US economy is going to head towards...."

However, your title says it all.. "Oil Jumps, Stocks Slide, Dollar Succumbs." THE US ECONOMY IS HEADED TO HELL IN A HANDBASKET. So, while the Fed talks "strong dolar policy," nothing is being done to actually strenghten the dollar.

The Fed can talk until it's blue in the face, but until the US returns to solid economic policy and stops spending money like there is no tomorrow, the United States and its dollar will continue to deteriorate.

The irony is that the US is evolving from the strongest nation on earth with a respected dollar into a nation which is loathed and a currency that is feared because it is falling so much in value.

[gabe borenstein]

In fact today's data was quite positive .The recession gurus who have proclaimed U.S economy to be in recession(two consecutive quarterly declines in the GDP) have some explaining to do.The negative market psychology is not necessarily economic reality.With the key global economies decelerating ,we will see a price adjustment in the crude oil. More monetary accomodation is needed and will be forthcoming .Economic upheaval in the Emerging Markets will strengthen the dollar in the period ahead.In the short run the volatility will continue ,but the major uptrend in the stock market is on the way.
Geenspan?his policies of several years ago had driven the FF to 1% ,allowing for "structured "mortgages leading to subprime debacle -for the record 20% of all the homes sold in 2006 were financed by the subprime mortgages.Thank you Mr.Greenspan.Stock market?for all of the wrong reasons will reach new highs in the period ahead

[John Pseudonym]

Does this look like a bull chart?

bigcharts.marketwatch....

[sunrises]

Here is some interesting today's data for currency traders:

1. Australia's economy rose 1.4% in Q1 and more expected.

2. Japan's household spending declined 3.2%, Job vacancies down .92 & inflation doubled.

3. New Zealand's economy headed for recession. GDP fell 0.3%

Goodluck!

[sunrises]

Given the above information:

Also, consider aud/nzd

& eur.

[James V]

Erm...

Why are we talking about US data, when yesterday it became apparent that the Citi Group are going to write down another 8.9 billion USD. In effect this is an advert that they are insolvent.

The only think stopping them from bankcruptcy is by raising funds from the Middle East and Asia.

And of course the FED printing money day in day out.

This begs the question if Cit Group are insolvent what counter-party risk has the rest of the worlds companies have.

Also we are now seeing write-downs in all sort of other exciting areas. Its a good job all the rating agencies are not independent or the flawed financial system would have gone down.

What a system:-

Credit Default Swaps written by insolvent banks with AAA credit ratings.

You all know what happens next....


Disclaimer - Very Very Very Very Long Gold.