Friday Recap … August 21, 2009

Key News

 

* Existing Home Sales in U.S. Jump to Two-Year High  (Bloomberg)

* Trichet Says Global Recovery Talk Makes Him ‘Uneasy’  (Bloomberg)

* China Said to Plan Rules Tightening Capital of Banks  (Bloomberg)

* Bernanke Says Global Economy Emerging From Recession  (Bloomberg)

 

The Event Agenda

The Afternoon Run-Down

The currency markets had plenty of news to digest today and, in the end, the dollar for the second time in two weeks earned demand from a relative growth perspective.  You might recall the short-lived breakdown of the risk trade two Friday’s ago, when the dollar was favored after a surprisingly better employment report.  Yields rallied, stocks rallied and so did the dollar for a change.  Since last year, within the risk-on/risk-off environment the dollar has only benefited when fear and uncertainty creeps in.  Otherwise good news has been bad for the dollar.

 

But today was another sign that the sentiment toward the dollar may be shifting.  Bernanke’s speech at the Kansas City Fed conference was growth positive.  And the reaction in markets was lower yields, higher stocks and a reversal in the dollar toward higher ground.  After a decline in the London session, the dollar made the strongest move against the pound and the yen where the U.S. holds a stronger position in the recovery theme. 

 

The euro fared a bit better against the dollar after recent data has suggested the Eurozone will emerge from recession sooner than thought.

 

Here’s a look at the activity from Friday…

Key Charts

The move in the pound following Bernanke’s speech…

S&P’s broke to new 2009 highs on the growth theme…

Crude did as well…

The market turned focus to Chinese stocks as the proxy for the sustainability of global economic recovery and the Shanghai Composite slid sharply this week and held at the 38.2% retracement.