The final week of 2009 lacked direction as traders exited positions prior to Christmas, causing low volume across the board. The dollar index closed unchanged while the S&P 500 index dropped by 1%, despite better than expected Jobless Claims data.
The week began slowly with analyst dissecting information out of China. Chinese Premier Wen Jiabao warned of growing inflation expectations in a rare domestic media interview, expressing his concerns about the nation’s fast-rising real-estate prices and acknowledging that Beijing may be paying a price for its aggressive response to the global financial crisis. Speaking to the state-run Xinhua news agency on Sunday, Mr. Wen also flatly rejected foreign criticism of China’s exchange-rate policy, saying that stability in the yuan’s value helps the global economy and that China won’t bow to pressure to let it appreciate. “Keeping the yuan’s value basically steady is our contribution to the international community at a time when the world’s major currencies have been devalued,” he said.
On Tuesday, market participants were required to absorb data on U.S. housing prices. U.S. home prices decreased at a slower annual rate in October, according to the S&P Case-Shiller home-price indexes, but prices were flat compared with September. The indexes showed that prices in 10 major metropolitan areas fell 6.4% in October from a year earlier, while in 20 major metropolitan areas, home prices dropped 7.3% on the year. Both indexes were flat in October compared with the previous month. David M. Blitzer, chairman of S&P’s index committee, said the data, best described as flat overall, will likely “spark worries that home prices are about to take a second dip” as they come after solid improvement.
All 20 major metropolitan areas again posted declines from a year earlier, the 19th time in a row. Las Vegas continued relative weakness, remaining the one market that had not seen a glimmer of hope throughout 2009. Prices have declined there for already 38 consecutive months.
On Wednesday the market bounced due to positive manufacturing news from the US. Companies in the U.S. expanded in December at the fastest pace in almost four years, signaling the economic recovery is gaining speed heading into 2010. The Institute for Supply Management Chicago Inc. said today its business barometer rose to 60, exceeding economist’s expectations and reaching the highest level since January 2006. Readings above 50 signal expansion. Stimulus programs and discounting have propelled a rebound in global sales that is reducing stockpiles, which may spur manufacturers to further increase production in coming months.
On Thursday the Labor Department reported that the number of people filing new claims for unemployment benefits in the U.S. fell to its lowest level in nearly 18 months, a sign the labor market may be turning a corner. Initial claims for unemployment benefits fell by 22,000 to a seasonally adjusted 432,000 in the week ended Dec. 26, the lowest level since July 19, 2008. The four-week average of new claims, which smoothes volatility in the data, dropped by 5,500 to 460,250, its 17th consecutive drop. The Labor Department said in its weekly report, released Thursday, that 4.98 million people had been collecting jobless benefits for more than a week in the week ended Dec. 19, a decline of 57,000. The unemployment rate for workers with unemployment insurance for the week ending Dec. 19 remained unchanged at 3.8%.
On the Forex market the sterling bounced back strongly during the week, after Thursday’s mixed session helped to push the GBP higher. Furthermore, to date there are talks of M&A related demand, which is helping to push the Sterling higher. The sterling rallied back to its 20 day moving average which is now at $1.6180, and could provide strong resistance for Cable. Earlier in the week, Sterling tested $1.5820 which provided strong support. The low 1.58 provided support in late September and early October and will be a key level for Sterling moving forward.
The dollar continued its climb against the Yen and continues to look very attractive from a technical point of view. The currency pair, USD/JPY broke above trend line support at 91.80 and looks to be headed toward the next resistance levels near 97.00. Additionally, the 20 day moving average crossed above the 50 day moving average on USD/JPY which drove a lot of technicians into the trade. The bullish trend will likely continue into the beginning of 2010.
The Week Ahead
Next week traders will be eyeing the EMU Purchasing Managers Index and the UK PMI on Monday. The market moving data will be immediately followed by the US ISM and Construction Spending figures. On Tuesday the EMU CPI and US Factory Orders and Pending Home Sales take center stage.
Towards the end of the week a wave of data will be released including the US ISM Services and ADP Employment figures. The BOE will also approach the market and release its rate decision. The week will end with a bang as the U.S is scheduled to release its employment report. The unemployment rate is currently expected to hover around the 10% level at 10.1%.
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