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Glum US Economic News Bears the Markets

The equity markets sold off to new weekly lows today after being pelted with a barrage of negative economic news.  Initial jobless claims increased to 500k for the first time in nine months.  Granted, unemployment numbers are lagging indicators in the business cycle, a frequent question on the Series 7 exam, but the Conference Board report of leading indicators this morning slipped to only a 0.1% gain, less than the anticipated 0.2%.  Finally the Philadelphia Fed's index of manufacturing activity took a major tumble, a negative 7.7 sharply under the 5.1 index in the previous period.

Contrast these reports to those coming from Britain, where this morning retail sales were reported at a positive 1.1%, better than the expected 0.4%, and 0.7% in the previous period.  At the same time the Public Sector Net Borrowing report was released, and these numbers were a vast improvement.  The year ago July borrowing was £13.9B, the expected July 2010 was £5.2B, while the actual number came in much better than expected, £3.2B.  If this trend continues, perhaps the Tories new thrust to reduce the size and cost of government, and to modestly increase tax revenue, is much more effective than the approach of Larry Summers and his band of Ivy League big spenders.

Contrast this to the Congressional Budget Office report that this year's federal deficit will top $1.3T or only $71B less than last years deficit.

The bullish pound and bearish dollar news was enough to give the pound a quick 150 pip rally in the GBP/USD prior to a retreat back to the 1.56 handle.  This mornings weak data is cited by some analyst as the cause for the USD to turn back higher on safe-haven demand.  We are having a little trouble getting with the concept that weak US economic data is really bullish because it means the safe haven people are now going to buy the USD.  And often it is hard to know if the data had been priced into the market, or if the market is surprised by the new facts. The constructive British data did chase us from the short side of the pound.

The US  and British news overshadowed the Canadian economic data reported this morning.  Canadian leading indicators were a positive 0.4%  but worse than the expected 0.7% and 0.7% in the previous period.
The m/m wholesale sales number was a -0.3 less than the expected 0.4% and 0% in the previous period.  The increasing possibility of a further slowdown in the US economy is a problem for the loonie. 

The C$ did retreat about 150 pips versus the USD today.  Combine the floundering US economy and the weaker oil prices, we find it hard to get bullish on the C$ at this time.   The GBP/CAD is currently trading at 1.6210, having rallied from a low of 1.5956 today.  Let's try to buy the GBP/CAD on a pull back to 1.61 risking 150 pips.  The tp should be 1.65.  If you cannot beat them you might as well join them.

Disclosure: no positions