This afternoon's steady descent continues to take stocks deeper into negative territory. The S&P 500 is still well above last week's low near 1294, though.
Widespread weakness among stocks and increased volatility has taken Treasuries into higher ground so that the benchmark 10-year Note is now up about five ticks. The yield on the Note is now just above 3.40%.
Stocks continue to trade with weakness. Broad pressure has even kept many automakers in the red, despite strong monthly sales results. Ford Motor (F 14.68, -0.37) said that its U.S. retail sales for February increased by 23%. Chrysler reported a 13% annual increase in February sales. General Motors (GM 32.64, -0.77) reported a 49% year-over-year surge in February auto sales. Nissan Motor (NSANY 20.62, +0.22) reported U.S. sales for February increased almost 32% year over year.
The dollar fell against most of its major counterparts as Federal Reserve Chairman Ben S. Bernanke said rising oil and commodity prices probably won’t boost broader inflation and interest rates will likely remain low.
Experience with price gains in recent decades, along with currently stable labor costs, suggests a “temporary and relatively modest increase in U.S. consumer price inflation,” Bernanke told the Senate Banking Committee in his semiannual monetary policy testimony.
Bernanke reiterated the Fed’s outlook that while growth will accelerate this year, he still wants to see a “sustained period of stronger job creation.”
“The prepared comments aren’t nearly as dovish as we’ve heard in the past,” said Kathy Lien, director of currency research at online currency trader GFT Forex in New York. “The Federal Reserve is still looking beyond the temporary impact of inflation and oil prices, which is not something we can say for central banks in Europe.”
The euro gained versus the dollar as the European Commission raised its growth forecast and said inflation may stay above the European Central Bank’s limit for most of 2011.
“The market is pretty focused on inflation and central bank reaction,” said Jessica Hoversen, a Chicago-based analyst at the futures broker MF Global Holdings Ltd. “Unless we can see short-term rates heading higher in anticipation of Fed reaction, the dollar could trend lower.”
The dollar briefly erased losses against the euro after the Institute for Supply Management’s factory index increased to 61.4. from 60.8 in February, the Tempe, Arizona-based group said today. Readings greater than 50 signal growth.
The ISM’s measure of new orders in the U.S. rose in February to 68, the highest since January 2004, from 67.8. The employment gauge jumped to 64.5, the highest since January 1973, from 61.7 in the prior month.
The S&P 500 has offered technical support at the 1315 line, which is where stocks continue to sit. Amid the increasingly widespread weakness, eight of the 10 major sectors are in the red -- five of them are down by more than 1%. Consumer staples (+0.2%) and health care (unch.) are the only two sectors not in the red.
Treasuries haven't made much of a move in response to the stock market's slip. Instead, the benchmark 10-year Note is still down with a slight loss.
However, precious metals have attracted safety seekers. In turn, gold prices are up 1.3% to $1428 per ounce while silver prices are up 2.0% to $34.48 per ounce.
U.S. stocks were poised to open higher Tuesday, extending gains from the previous session, as concerns about the Libya situation eased.
Despite a slight step back last week, stocks closed out February on an upbeat note - posting their third straight month of gains.
Overall, all three major indexes were up nearly 3% during the month, and have risen more than 5% since the beginning of the year.
Meanwhile, investors are looking ahead to the government's monthly payroll report on Friday, which will reveal how many jobs were created in February.
Economy: The Institute for Supply Management will release its manufacturing index at 15:00 GMT. It's expected to fall slightly to 60.5, which would still indicate expansion in the sector.
Federal Reserve chairman Ben Bernanke is due to give his semi-annual testimony on monetary policy to the Senate Banking Committee.
Treasury Secretary Tim Geithner is scheduled to testify before the House Financial Services Committee on the administration's plan for reforming America's housing finance market.
Companies: Ford (F, Fortune 500), General Motors (GM), Toyota (TM) and other automakers release their February sales figures starting at around 10:45 a.m. ET.
EUR/USD orbits $1.3820 ahead of the key events later in the day, including Bernanke testimony, as well as a sizeable option expiry at $1.3800. Flows light. Offers in place at $1.3860 ahead of stops, bids back at $1.3780/70.
GBP/USD holds under pressure a bit higher bids between $1.6255/50. Rate retreated after printing session high on $1.6330. Rate currently trades around $1.6260. A break of $1.6250 to allow for a deeper move toward $1.6220. Resistance now seen in place between $1.6300/10.
07:00 UK Nationwide house price index (February) 0.3% -0.2% -0.1%
07:00 UK Nationwide house price index (February) Y/Y -0.1% - -1.1%
08:45 Italy PMI (February) 59.0 57.6 56.6
08:50 France PMI (February) 55.7 55.3 54.9
08:55 Germany PMI (February) seasonally adjusted 62.7 62.6 60.5
08:55 Germany Unemployment (February) seasonally adjusted -52K -14K -13K
08:55 Germany Unemployment (February) seasonally adjusted, mln 3.069 - 3.135
08:55 Germany Unemployment rate (February) seasonally adjusted 7.3% 7.4% 7.4%
08:55 Germany Unemployment (February) seasonally unadjusted, mln 3.317 - 3.347
08:55 Germany Unemployment rate (February) seasonally unadjusted 7.9% - 8.0 (7.9)%
09:00 EU(17) PMI (February) 59.0 59.0 57.3
09:30 UK CIPS manufacturing index (February) 61.5 61.7 62.0
09:30 UK M4 money supply (January) final 0.8% - -1.3%
09:30 UK M4 money supply (January) final Y/Y -1.7% - -1.5%
09:30 UK Consumer credit (January), bln -0.3 0.2 0.8 (0.2)
10:00 Italy CPI (February) preliminary 0.3% 0.2% 0.4%
10:00 Italy CPI (February) preliminary Y/Y 2.4% 2.2% 2.1%
10:00 Italy HICP (February) preliminary Y/Y 2.1% 2.0% 1.9%
10:00 EU(17) Harmonized CPI (February) Y/Y preliminary 2.4% 2.4% 2.3%
10:00 EU(17) Unemployment (January) 9.9% 10.0% 10.0%
The yen and the Swiss franc weakened as economic reports from Japan to Sweden added to signs the global recovery is gathering pace, damping demand for safer assets.
Japan’s currency fell as the European Commission raised its growth forecast for 2011 and said inflation may stay above the European Central Bank’s limit for most of the year, boosting the appeal of higher-yielding securities.
The euro extended yesterday’s advance versus the franc amid speculation ECB President Jean-Claude Trichet will signal this week that policy makers are ready to raise interest rates.
Gross domestic product in the euro region may increase 1.6% this year, above an earlier forecast of 1.5% growth, the European Commission said today. Inflation will average 2.2%, the agency forecast, up from a November estimate of 1.8%. Inflation in the 17- nation bloc quickened to 2.4% last month from 2.3% in January, the European Union’s statistics office said today in a preliminary estimate.
Australia’s dollar climbed for a third day against the Japanese unit as a government report showed retail sales gained 0.4% in January from a month earlier. That beat the 0.3% median forecast in a survey.
EUR/USD printed session high on $1.3854, but failed to go further and retreated to $1.3823.
GBP/USD fell to $1.6255 after testing highs around $1.6323.
USD/JPY slowly weakened from Y82.25 to Y82.02.
US data starts at 1500GMT, when Federal Reserve Chairman Ben Bernanke gives his semi-annual monetary policy report to the Senate Banking Committee in Washington.
US data also heats up at 1500GMT, when ISM manufacturing data is expected to fall to 60.5 in February.
At the same time, construction spending is expected to fall 0.8% in January following the residential-related plunge in December. Housing starts rose sharply in the month, suggesting that residential construction rebound in the month.
Daily studies show oil price is in overbought territory with initial support seen as the former resistance line from Aug 4 at $96.23 and the 38.2% Fibonacci of $83.85/103.41 at $95.93. The daily Bollinger band continues to widen, indicating further room for increased volatility. Initial res seen as the former 23.6% Fib of $83.85/103.41 at $98.79.
JPM expects Bernanke to make three main points:
1) the economic recovery is getting stronger
2) the Fed is still very far from its dual mandate and therefore accommodative policy for an extended period is still warranted
3) the Fed will ensure that inflation expectations remain well-anchored
The dollar struggled to regain its footing on Tuesday after a steep decline, while the euro held firm as investors bet the Federal Reserve will stick to its easing course even as the ECB talks of tightening.
Fed Chairman Ben Bernanke is expected to remain cautious about the economy at his semi-annual testimony before the Senate Banking Committee starting at 1500 GMT.
In the words of New York Federal Reserve Bank President William Dudley: "We're still very far from achieving our dual mandate of maximum sustainable employment and price stability."
This puts the Fed at odds with other major central banks, which are starting to worry about rising price pressure, and reinforces the view that the European Central Bank will probably hike rates before the Fed.
Bernanke's testimony could provide the impetus for more dollar-selling, said Andrew Robinson, FX market strategist for Saxo Bank. "If we get any indication that he is going to complete the QE2 measures all the way through...I think it is quite possible we will see further dollar weakness," he said, referring to the Fed's $600 billion bond-buying programme. If the dollar index drops below trendline support around 76.20 that roughly links its 2008, 2009 and 2010 lows, that could open the way for a further decline toward its 2010 trough of 75.631, Robinson added.
The common currency was further helped by calmer nerves after oil prices fell on expectations that increased production from Saudi Arabia can offset supply disruptions stemming from Libya's turmoil, and Wall Street ended firmer.
Markets are keeping a close eye on the outcome of the ECB's policy meeting on Thursday.
The Reserve Bank of Australia kept interest rates unchanged at 4.75% as had been widely expected. The central bank said the current monetary policy is appropriate and added that the global economy is continuing to expand.
GBP/USD remains under pressure while correcting from earlier highs at $1.6330. Currently rate probes bid interest into $1.6270. Below $1.6270 to allow for a deeper move toward $1.6250.
EUR/USD extends recovery to $1.3854, though holding shy of a retest of Monday's NY high at $1.3857. Rate currently trades back at $1.3840. Strong offers seen placed between $1.3857/62 (NY high and 2011 high Feb2). Stops noted through $1.3865/75.
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