yesterday was something to remember for the USD. the ISM really sets the tone for the USD in 2008. last night, i recorded a bearish UJ (+-238pips), a bearish GU(+-272pips) and a bullish EU(+-106). i really didn’t expect that the ISM would fell to 47.7, which is a solid decline from last month’s 50.8 reading. Generally speaking, a reading above 50 indicates you have a growing economy and less than 50 indicates contraction. and this is bad, really bad.
The Prices paid component of the report showed that higher Raw Material costs (Commodities) are impacting the manufacturers, and they may soon have little choice but to start to pass those costs on, to a consumer that has a huge amount of inflation already built into the daily items that need to be bought. The Dollar may now lose ground to the Euro (Reserve Currency Link), Swissy (10 year Treasury Yield Link) and Yen (Equity Market Link) as the Equity market reject this report and move to Bonds, but may be able to hold on against the Pound, Cad and Aussie.
this fell is actually the lowest in almost 5 years. As the manufacturing data shows the US economy to be continually battling with the housing and credit crisis, many are rallying around the speculation that the Fed will once again cut rates in their January 30th meeting to give a helping hand to the faltering economy. As a result of all the uncertainty that is taking hold of the US, many investors are looking away from the US for greater opportunities, and leave the country with a pessimistic outlook for 2008. .
on the other hand, the Pound remained broadly weaker after a drop in the UK manufacturing PMI. The figure for December dropped to 52.9 from November’s 54.3. The decline was steeper than anticipated, as analysts polled expected the main measure to ease to 53.8, and reminded investors that the Bank of England may yet opt for a back-to-back rate cut at next week’s meeting. However, the manufacturing PMI alone will not guarantee a rate cut next week, so extra attention will be paid to the weightier services PMI due Friday. If the services PMI weakens further when released this Friday, the combination of the two will emphasize the growing downside risks to the economy, and support thoughts of a possible interest rate cut next week
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