Key News
* Bernanke Is Nominated for Second Term as Fed Chief (Bloomberg)
* Government Spending Lifted Germany Out of Recession (Bloomberg)
* Home Prices in 20 U.S. Cities Fall Less Than Forecast (Bloomberg)
* Swine-Flu Report Details Number of Potential Cases (WSJ)
The Event Agenda
The Morning Run-Down
The general consensus following the Kansas City Fed symposium in Jackson Hole was that key global economies are emerging from recession.
The currency markets have reacted by rewarding those currencies with better growth prospects and better yield prospects and penalizing those that are projected to underperform.
As a result, the U.S. dollar, the euro, the Canadian dollar and the Aussie dollar have all done better relative to the pound and the yen.
The crisis-oriented trend of what’s good for the U.S. economy is bad for the dollar is showing signs of waning. As more upbeat assessments of recovery continue, a transition back toward normal value drivers in currencies will inevitably take place. That means economies with better growth prospects and yield prospects will attract capital. And the U.S. is expected among the top performers.
Here’s a look at expectations for full year 2009 and 2010 growth…
Still, central bankers and government officials have continued to warn against complacency. The IMF said, post Jackson Hole, warned that sustainable global expansion would have to include development of domestic demand in Asian countries…i.e. they can’t rely on exports. That’s unlikely.
China’s stock market continues to show signs of vulnerability. The Shanghai was down over 5% before recovery near the close to finish down 2.6%. Yesterday, Chinese Premier Wen warned about being “blindly optimistic” about China’s economic recovery. The Chinese stock market is important to watch. China has recently been pealing back the flood of liquidity that drove the first half performance of the Chinese economy. A further slide in Chinese stocks could shake global confidence and reignite the risk aversion trade.
If this happens, it’s a dollar positive on the flight to safety trade. If it doesn’t happen, the dollar should do better anyway as the relative growth trade continues to re-emerge.
Key Charts
While Chinese stocks have sold off…U.S. stocks have continues higher. Look for this divergence between the S&P 500 and the Shanghai Composite to converge. Vulnerability= lower.
Bearish head and shoulders in the pound + relative fundamental weakness in the UK points to a lower pound…
Related posts:
- Morning Run … August 17, 2009 Key News * Pound Drops as Home Sellers Lower...
- Morning Run … August 11, 2009 Key News * Ruble Falls in Longest Slump...
- Morning Run… August 3, 2009 Key News * Euro gains on positive manufacturing data...
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