Expert Analysis of Today's Market

• The dollar rose against most of its rivals Thursday on higher-than expected US Q2 GDP revisions and falling oil prices. The euro reversed overnight gains on declining oil prices. Sterling fell against the dollar and approached a record low against the euro as the UK economic outlook continued to deteriorate. The Canadian dollar fell in tandem with oil prices after the Energy Department said it is ready to release oil from the Strategic Petroleum Reserve if supplies are reduced by tropical storm Gustav. The yen declined as US stocks rose for a third day. The Australian dollar rose after Australia’s Q2 business investment increased almost three times as much as forecast.


• The GBP/USD dropped after reports showed UK house prices fell for a tenth consecutive month and retail sales fell to the lowest since 1983. Pressured by both diminishing growth and interest rate expectations, the GBP/USD is on tap for a six consecutive weekly decline. Oversold on all measures, the pound, however, will likely continue to fall. Support exists at 1.81 and resistance at 1.85.

Financial and Economic News and Comments

US & Canada

• US real GDP was upwardly revised to a 3.3% q/q annual growth rate in Q2 2008, exceeding expectations, versus an originally estimated 1.9% q/q, revised data from the Commerce Department showed. Real GDP grew 2.2% y/y. The largest upward revisions were for net exports, which added 3.1 points to real GDP growth rather than the original estimate of 2.4, and inventories, which subtracted 1.4 points from the growth rate rather than the original estimate of -1.9. The largest drag on real GDP continues to be home building, which subtracted 0.6 points from the growth rate. Excluding housing, real GDP rose at a 4.0% rate in Q2, up 3.2% y/y. The GDP price index was upwardly revised to a 1.2% annual rate in Q2 versus an original estimate of 1.1%. Nominal GDP growth – real GDP plus inflation – was revised up to a 4.6% growth rate in Q1 versus an original estimate of 3.0%.

• The GDP report includes new data on corporate profits. Pre-tax profits (with inventory and capital consumption adjustments) fell 7.0% y/y in Q2 2008, the biggest drop since the 2001 recession and the sixth consecutive quarter of annual declines. Profits fell 2.4% q/q in Q2.

• US initial jobless claims dipped a seasonally adjusted 10,000 in the week ended August 23; however, remaining at 425,000, a level consistent with past recessions, according to data from the Labor Department. Continuing claims in the week ended August 16 rose 64,000 to 3.423 million, the most since November 2003.

Europe

• Germany’s unemployment in August fell a more-than-expected 40,000 to 3.2 million after declining 20,000 in July, data from the Federal Labor Agency showed. The jobless rate fell to 7.6%, the lowest since May 1992.

• The eurozone retail sales index increased to 47.7, still indicating eurozone retail sales contracted for a third month in August, from 46 in July, according to the survey compiled for Bloomberg LP by Markit Economics. The German retail sales index fell to 44.1 in August from 46.4 in July, Markit said.


• UK house prices fell 10.5% y/y to £164,654 ($301,500) in August, the biggest annual drop since Q4 1990, Nationwide Building Society said. House prices declined 1.9% m/m in August, the 10th consecutive drop in values. The CBI UK retail sales index fell to -46 in August, the lowest since the survey began in July 1983, from -36 in July, the Confederation of British Industry said. Today’s UK figures indicate the UK economy is heading for its first recession since the early 1990s after stagnating in Q2 2008.

Asia-Pacific

• Japan’s sales of overseas securities exceeded purchases by ¥1.42 trillion ($13 billion) in the week ended August 23, reaching a record high on currency volatility and concern the US housing slump will worsen, according to data from the Ministry of Finance.


• Bank of Japan board member Miyako Suda said containing inflation is “key” to sustaining economic expansion. “While the Japanese economy is in a sluggish state, containing inflation is key to sustaining economic growth,” Suda said in Kanazawa, central Japan. “Given that global monetary conditions have been accommodative, inflation is rising around the world, and that’s clearly causing inflationary expectations of people and companies to rise.”


• The Australian Conference Board said its leading index fell 0.5% in June, the fifth decrease since the beginning of the year, following May’s 0.1% decline. The coincident index decreased 0.1% in June, matching May’s result. The figures indicate further economic slowdown in Australia.


• Australia’s capital spending jumped a more-than-forecast 5.7% q/q in Q2 after gaining a revised 1.0% q/q in Q1 as mining companies spent extra on machinery and equipment to meet demand from China, data from the Bureau of Statistics showed. Investment by mining companies such as Rio Tinto Group surged 8.1% q/q in Q2.


• New Zealand’s economy is facing a serious challenge as recession looms, Finance Minister Michael Cullen said. “New Zealand is facing a serious economic challenge generated by the global credit crunch and steep rises in commodity prices,” Cullen said in Auckland. Consumers “have certainly felt pressure this year, both at the petrol pump and the supermarket checkout.”

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