It seems that the US economy is on track for a strong second half to 2008 with consumer sentiment and housing data adding to the general improvement to the fundamental outlook. However, this optimistic outlook is being bolstered by data that is improving from recent record lows and is still filled with holes.Considering all of this, it will be important to evaluate the GDP numbers later this week when deciding our long-term fundamental positions.
Strength In Consumer Confidence And Housing Data Riddles With Caveats
It seems that the US economy is on track for a strong second half to 2008 with consumer sentiment and housing data adding to the general improvement to the fundamental outlook. However, this optimistic outlook is being bolstered by data that is improving from recent record lows and is still filled with holes. This can be seen quite clearly in today’s data. The Conference Board’s sentiment report improved for the second consecutive month with a better than expected 56.9 reading. Alone, this would seem a promising figure, but in reality this is really a bounce from the worst levels of pessimism in 16 years. What’s more, all of the improvement for the August reading is in the form of expectations (which are subject to dramatic changes) while the review of current conditions continues to hit new lows. Conditions are similar with the housing data. The S&P/CaseShiller price indicator missed the worst of expectations, but was still the lowest reading on records going back to 2001. In similar form the 2.4 percent jump in new home sales was accomplished only through a sharp negative revision to the previous month’s initial reading. Had there been no revision, there would actually have been a 2.8 percent drop in new home sales. Traders have picked up on these caveats. This is why the slew of otherwise strong releases saw little to no dollar strength in most of its liquid pairs. Considering all of this, it will be important to evaluate the GDP numbers later this week when deciding our long-term fundamental positions.
Consumer Confidence/ US S&P/Case Schiller Home Prices (Monday)
On Tuesday, the release of US economic data may highlight some of the reasons why traders are ramping up speculation that the country is in midst of a recession. Indeed, at 9:00 EDT, the S&P/Case-Schiller index of home prices is likely to fall sharply for the twenty-first consecutive month in June. Later in the morning at 10:00 EDT, the Conference Board’s consumer confidence index is forecasted to edge up to a reading of 53.0 in August from 51.9. While US economic conditions haven’t improved in any way, shape, or form, we saw last month that a drop in oil prices helped to boost sentiment and lower inflation expectations. Since commodities plunged for much of August, there is potential for there to be a similar increase in confidence which would be bullish for the US dollar. However, since the US housing, services, and manufacturing sectors all remain weak while labor market conditions deteriorate, there is certainly downside risk for this release as well.
See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
Questions? Comments? E-mail: jkicklighter@dailyfx.com
