Event risk was running high with the multiple indicators on the docket; but, as has happened frequently in the past, the number of releases actually worked against volatility. The mixture of tepid and surprising housing, factory activity, inflation and international trade data effectively took the steam out the move that could have formed if each had been the lone indicator for the day.
For the benchmark EURUSD, an initial move to 1.2895 corrected to a 55-point run, all within the confines of recent ranges. The pounds advance against the dollar on the other hand was fairly consistent from 1.9605, overnight lows to a the 1.9725 pause on resistance. The USDJPY has wavered with concern over tonights BoJ meet. After timidly moving to a new 120.90 high, the stepped back to congestive trade above 120.50. Finally, the Swiss franc-denominated major was swayed little by the sessions data, confined between 1.2515 and 1.2450.
In an unusual turn, fundamentals were overflowing for market participants; and yet the dollar was still working through a sluggish response. The evenly distributed prints began this morning with the Producer Price Index for December. Following up on the improvement in the import gauge released last week, the factory-level inflation measurements produced modestly better than expected data. For the month, headline inflation marked a 0.9 percent pace. While this was a technical deceleration from Novembers 2.0 percent surge, it is still the strongest back-to-back advance in years. Furthermore, the annual figure excluding the effect of volatile products like energy and food, rose to a 15-month high. Conversely, the breakdown reveals that beyond the 7.1 percent growth in gasoline prices, there were few additions suggesting a convincing rebound in inflation was in the making. Together with the Import Price Index, the PPI numbers set up modest expectations for tomorrows CPI.
Later on in the day, a few indicators ran across the ticker with little interest from traders. Steadily fading into the background month after month, the TICS read for November reported a smaller than expected $68.4 billion surplus. However, the indicator was not without its news worthy traits. For one, the inflows from foreign investors have once again offset the physical deficit. Also interesting was the sharp drop in net equities purchases given the high level of the national stock indices. The rallies seen in other major industrial centers seem to offer equally appealing alternatives to US corporate share buying. Moving along, the first increase in industrial production in four months generated little enthusiasm for the dollar. With a downward revision for Novembers print and slow improvement in most of the core market groups, there seemed little to offset the dour January Empire survey released yesterday.
The final set of indicators released in the afternoon, finally offered some one-sided momentum for the dollar. The Feds Beige Book is the same summary used by monetary policy makers to help them make their decision at rate meetings. In recent months, the report has garnered more and more interest for the market as traders try to divine when the Board of Governors will finally move. Helping the dollar bulls cause, the report tilted to the hawkish with the downturn in housing drawing the biggest concern. If the biggest concern in the Fed is housing, then the six-month high in the NAHBs Housing Market Index released an hour earlier bodes well.
A few of the benchmark equity indices started the session off in the green this morning as the oil continued its slide, but a broad slide in tech stocks evaporated buying interest. By 20:30 GMT, the NASDAQ Composite led the decline with a 0.7 percent drop to 2,481.17. Sticking close to their open, the S&P lost only 0.1 percent to 1,420.77 while the Dow moved marginally lower to 12,578.99. One earnings report triggered the slump in tech shares Wednesday morning. Bellwether Intel reported a 39 percent drop in fourth quarter profit and a flat forecast for 2007. In response, shareholders hammered the stock $1.43 or 6.4 percent lower to $20.87.
Treasuries reversed yesterdays small advance after a hawkish Beige Book and a pick up in inflation led investors to continue to loosen rate cut expectations. T-notes were trading 8/32nds lower at 98-25 with yields 3 basis points higher at 4.779 by 20:30 GMT. Bonds dropped 15/32nds to 94-08 while its own yield was bumped up to 4.872 after adding 3 basis points.
