While Iran Threat Keeps Oil Elevated, U.S. Stocks and Dollar Slip

Oil continues to trade near elevated levels (above $143 as at the time of writing) on Iranian verbal threats, and the Dow Jones Industrial Average is down more than 130 points. Iranian Deputy Oil Minister was reported as saying Iran is ready to repel any attack, and said that an attack would disrupt oil exports and disrupt the entire oil industry in the Middle East. Middle East tensions are at the forefront again. Meanwhile, OPEC president said that oil prices reflect war risk, and to keep oil prices down, the US needs to stabilise the US dollar.

For the dollar to be stabilized, that’s not an impossible task. Further dollar decline could be prevented if traders can see a commitment by the Fed to fight rising inflation, but alas, the Fed thinks that inflation is likely to moderate later this year.

US Manufacturing Improves

What a surprise to see a totally unexpected expansion in US manufacturing activity, that is according to the ISM report released Tuesday. The headline purchasing managers index went up to 50.2 in June (48.6 expected) from 49.6 in May, and since it is above the 50 mark, it indicates growth, not contraction, in the important manufacturing sector. Although this is the first growth in four months, it may not be a harbinger of more growth ahead.

Forex Trading

In the currency markets, major currencies have been trading sideways, without any strong push to break out of the recent trading range. The US dollar is slightly weaker against the Euro, Swiss franc, British pound and the Japanese yen; after all, there’s no incentive for dollar bulls to jump into the market before the Great Lottery of the Month (that is, the US NFP) is unleashed on Thursday. EUR/USD oscillates between 1.5720 and 1.5820. USD/CHF’s nearest support is around 1.0100-20, then 1.0080.

GBP/USD Hits 2.0000

The British pound rose to the highest level against the dollar in more than 2 months, reaching an intraday high around 2.0005, but is now trading below 1.9950. Any reasons for Sterling strength today? None actually, in fact, UK data released today was quite a turn-off, so traders could be having a more depressed view of the US dollar when it comes to Cable trading.

UK PMI manufacturing for June printed a low reading of 45.8, much worse than the 49.8 expected, and that was the lowest since 2001. As for the UK housing market, Nationwide reported today that UK house prices fell 0.9% month-on-month in June, slightly better than the 1% fall expected, and a slower pace of decline from May’s 2.5% decline.

Economic Calendar for Wednesday:

Australia retail sales 0130 GMT

Eurozone PPI 0900 GMT

US ADP employment change 1215 GMT

US factory orders 1400 GMT

Paulson speaks about capital markets, global economy 1500 GMT

Comments

[DaveinHacke...:]

<I>"What a surprise to see a totally unexpected expansion in US manufacturing activity, that is according to the ISM report released Tuesday."</I>

It shouldn't be a complete surprise that the weak dollar would help spur American manufacturing exports. It's this increase in exports that has kept us out of a recession so far.

2008 Jul 01 05:31 PM

[Reinko:]

Upon Iran:

Finally OPEC is talking some sense and we must not forget that the latest time the Iranians went on an agressive war was somewhere in the 19th century...

Until now there is no quantum of proof that the Iranians are indeed building nuclear weapons, I follow this for years and there is not one quantum of proof.

There is only stupid talk by stupid generals.

Beside this many years ago I explained to the Iranians how to build bunkers that could withstand the US bunker busters.
Lately the USA had a brand new model of far bigger bunker busters but in case the Iranians have followed my bunker building advices the new bunker busters are not a real threat.
The trick is very simple: Since bunker busters are very 'needle like' shaped all you have to do is destabilize the tip of the weapon at impact.

__________

On the paragraph 'US Manufacturing Improves':

In the first place the reported 50.2 in some vague statistic falls inside the white noise range, that means it is not statistical significant.
In the second place, it is related to exports so it has nothing to do with local USA demand.
When the US$ declines it is rather logical exports climb...

2008 Jul 01 05:40 PM

[Ames Tiedeman:]

I think the probability that we bomb Iran is high. Bush is 2/3 of the way to defeating his enemies: Saddam, North Korea, and Iran. Saddam is dead, and North Korea just blew up their nuclear cooling tower. All that is left is Iran. Bush will not leave office with the Iranians winning.

2008 Jul 01 05:58 PM

[Buddy Fox:]

Hey Grace,
You're smoking hot, so how about we discuss this further over a fine bottle o' Bollinger?

2008 Jul 01 07:15 PM

[Alpha Seeker:]

First off, if Bush was a CEO of a company that brings down the dollar 70% versus major currencies and the markets go nowhere for 7 years, I would think about firing the guy - before the term ends. O no, we are too lazy to to do that. Well, welcome to the newly competitive world where no dumb competitors exist, but fast, smart, hardworking countries with no big army expenses.

2008 Jul 01 09:46 PM

[Merger Mania:]

I guess that's all Bush can do is saber rattle against Iran. This saber rattling has been going on for more than 2 years, and the only thing that happens is that oil keeps climbing higher. Bush keeps the price of oil elevated , so that his buddies in the oil business can reap more profits. If the U.S. and Israel, the greater the profits for Big Oil.

2008 Jul 01 10:17 PM

[Buddy Fox:]

I think in general it's an extremely poor indictment on the upper echelons of American 'management' when you have can elect someone like Bush as president. No doubt in other positions of significance...say... US investment banks, people of equally gross incompetence slime their way to the top 80's style, with similar levels of horrendous outcomes.

2008 Jul 02 02:58 AM

[Joe:]

As far as the oil price and wars are concerned:
Rupert Murdoch, Boss of News Corp made an interesting prediction
in 2003:
(articel in the UK Guardian)

Murdoch praises Blair's 'courage'

* Julia Day
* The Guardian,
* Wednesday February 12, 2003
....He said the price of oil would be one of the war's main benefits. "The greatest thing to come out of this for the world economy, if you could put it that way, would be $20 a barrel for oil. That's bigger than any tax cut in any country."

Mr Murdoch's comments come just a week after he told Fortune magazine in the US that war could fuel an economic boom.
www.guardian.co.uk/pol...

2008 Jul 02 05:26 AM

[Michael L:]

The world is a high tension place, and what is happening to the dollar?
Spiking sharply higher as uncertainty would have caused it to do in the past? No. It's slipping. Thanks, Ben, for continuing on the same course as the catatonic, sleep-walker who preceded you, Greenspan, and for keeping America on the fast track to third-world status.

2008 Jul 02 12:40 PM