Oil Jumps, Stocks Slide, Dollar Succumbs

Includes: ERO, FXF, GBB, JYN, UDN, UUP
by: Grace Cheng

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


Eurozone consumer confidence 0900 GMT

US PCE deflator, personal spending, PCE core 1230 GMT

US U of Mich confidence 1400 GMT