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By XE Market Analysis September 26, 2017 6:55 am
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    XE Market Analysis: North America - Sep 26, 2017

    The dollar has been in rally mode today, especially against the euro and kiwi dollar, currencies that have both been left reeling following weekend election results in Germany and New Zealand, respectively. EUR-USD dove to a one-month low of 1.1793. EUR-JPY and other euro crosses also came off, though the biggest magnitude of decline was in EUR-USD. The NZD-USD pairing, meanwhile, fell by another 0.8%, building on the 1%-plus decline of yesterday. The dollar fared less well against the yen, which has retained a safe haven bid following the latest ratcheting of war-like rhetoric between Trump and Kim. USD-JPY remained heavy after yesterday logging a four-session low at 111.47.

    [EUR, USD]
    EUR-USD selling picked up, driving the pair to a one-month low of 1.1790. EUR-JPY and other euro crosses also came off, though the biggest magnitude of decline was in EUR-USD. We remain bearish of EUR-USD. The euro's rally from April had been already showing signs of tiring before the weekend's election in German, which has returned Merkel as Chancellor but in a weakened position, and now facing challenging coalition talks. There has been "bearish divergence" between the 14-day relative strength index and spot, for instance, with spot stretching higher while the underlying indicator of trend momentum started to decline. EUR-USD resistance is at 1.1870. The August-17 low at 1.1662 provides an initial downside target.

    [USD, JPY]
    USD-JPY has remained heavy after tumbling to around 111.50 after North Korea said Trump's threats of last week were tantamount to a declaration of war. EUR-JPY and other yen crosses also dropped as the yen's safe haven premium came back into play. We expect USD-JPY, which is coming out of a five big figure rally from early September levels near 107.0, to remain heavy for now. The immediate concern is that Pyongyang will carry out its threat to test detonate a H-bomb the Pacific. USD-JPY has resistance at 111.79-80, and support at 111.14-16. We look for declines to around 109.50.

    [GBP, USD]
    Cable is in consolidation mode with a modest downside bias, having clawed out an 11-day low at 1.3431 yesterday, which surpassed recent lows by about 20 pips. Sterling is coming off a nine big figure rally from the late August low to the high that was seen at 1.3659 last week, a bid fuelled by the BoE's signalling that it is likely to take back the "emergency" post-Breixt rate cut of August 2016. We have been advising caution, given persisting Brexit-related uncertainties (the consequences of which were cited by Moody's as part of its rationale for cutting cut the UK's sovereign rating to Aa2 from Aa1), and the fact that inflation readings are set to decline in the coming months as base effects caused by sterling's post-Brexit nosedive drop out of the equation. Data from UK Finance today highlighted that UK business are building up retained earnings due to Brexit uncertainties, and the final release of Q2 GDP data tomorrow is expected to confirm UK growth at 0.3% y/y -- half that for the Eurozone. Cable has resistance at 1.3587-90.

    [USD, CHF]
    EUR-CHF has come off the boil after clocking a new 32-month high at 1.1623 on Friday. Political uncertainty in Germany has taken a toll on the euro. The SNB stated at its quarterly policy review this month that the Swiss franc "remains highly valued," even in light of the relatively sharp weakening the currency saw from late July. We look for EUR-CHF to make an eventual return to the SNB's former floor level, at 1.2000, though this assumes that the political situation in Germany becomes clearer.

    [USD, CAD]
    USD-CAD has lifted to a four-day high 1.2389, which is three pips within three-week high terrain. The bid tone follows the Fed's hawkish guidance of last week, which has helped readdress the recent imbalance between the respective Fed and BoC outlooks. We expect the pair to hold up. There had already been signs that the four-month bear phase in USD-CAD, during which time the U.S. buck lost 12% to the Canadian dollar, was starting to wane. The early-September high at 1.2415 provides an initial target ahead of 1.2500. Support is at 1.2283-85.

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    By XE Market Analysis September 26, 2017 3:24 am
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      XE Market Analysis: Europe - Sep 26, 2017

      USD-JPY tumbled to around 111.50 after North Korea said Trump's threats of last week were tantamount to a declaration of war. EUR-JPY and other yen crosses also dropped as the yen's safe haven premium came back into play. We expect USD-JPY, which is coming out of a five big figure rally from early September levels near 107.0, to remain heavy for now. The immediate concern is that Pyongyang will carry out its threat to test detonate a H-bomb the Pacific. USD-JPY has resistance at 111.79-80, and support at 111.14-16. Elsewhere, the euro has largely settled after underperforming since the German election victory, though remains heavy, near its lows. EUR-USD clocked an eight-week low of 1.1831 after the London interbank close yesterday, since settling around 1.1850. We advise euro bears short EUR-JPY. The kiwi dollar posted fresh lows with the New Zealand political scene in disarray following unclear results at weekend elections.

      [EUR, USD]
      EUR-USD clocked an eight-week low of 1.1831 after the London interbank close yesterday, since settling around 1.1850. We remain bearish. The euro's rally from April had been already showing signs of tiring before the weekend's election in German, which has returned Merkel as Chancellor but in a weakened position, heralding challenging coalition talks. There has been "bearish divergence" between the 14-day RIS and spot, for instance, with spot stretching to new highs while the underlying indicator of trend momentum started to decline. EUR-USD resistance is at 1.1870. The August-17 low at 1.1662 provides an initial downside target.

      [USD, JPY]
      USD-JPY tumbled to around 111.50 after North Korea said Trump's threats of last week were tantamount to a declaration of war. EUR-JPY and other yen crosses also dropped as the yen's safe haven premium came back into play. We expect USD-JPY, which is coming out of a five big figure rally from early September levels near 107.0, to remain heavy for now. The immediate concern is that Pyongyang will carry out its threat to test detonate a H-bomb the Pacific. USD-JPY has resistance at 111.79-80, and support at 111.14-16. We look for declines to around 109.50.

      [GBP, USD]
      Cable is in consolidation mode with a modest downside bias, having clawed out an 11-day low at 1.3431 yesterday, which surpassed recent lows by about 20 pips. Sterling is coming off a nine big figure rally from the late August low to the high that was seen at 1.3659 last week, a bid fuelled by the BoE's signalling that it is likely to take back the "emergency" post-Breixt rate cut of August 2016. We have been advising caution, given persisting Brexit-related uncertainties (the consequences of which were cited by Moody's as part of its rationale for cutting cut the UK's sovereign rating to Aa2 from Aa1), and the fact that inflation readings are set to decline in the coming months as base effects caused by sterling's post-Brexit nosedive drop out of the equation. Cable has resistance at 1.3587-90.

      [USD, CHF]
      EUR-CHF has come off the boil after clocking a new 32-month high at 1.1623 on Friday. Political uncertainty in Germany has taken a toll on the euro. The SNB stated at its quarterly policy review this month that the Swiss franc "remains highly valued," even in light of the relatively sharp weakening the currency saw from late July. We look for EUR-CHF to make an eventual return to the SNB's former floor level, at 1.2000, though this assumes that the political situation in Germany becomes clearer.

      [USD, CAD]
      USD-CAD has lifted to a four-day high 1.2389, which is three pips within three-week high terrain. The bid tone follows the Fed's hawkish guidance of last week, which has helped readdress the recent imbalance between the respective Fed and BoC outlooks. We expect the pair to hold up. There had already been signs that the four-month bear phase in USD-CAD, during which time the U.S. buck lost 12% to the Canadian dollar, was starting to wane. The early-September high at 1.2415 provides an initial target ahead of 1.2500. Support is at 1.2283-85.

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      By xemarketanalysis September 25, 2017 2:54 pm
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        XE Market Analysis: Euro Slumps as Angela Merkel Scrapes by Into Fourth Term

        OVERVIEW

        • Sterling opened lower today after Moody's downgraded the UK's sovereign rating late on Friday.
        • The Euro is firmly on the backfoot after the German election results over the weekend. 
        • FED member Dudley says US economy is in a pretty good place. 
        • Kiwi elections fail to produce a majority, so coalition negotiations are set to begin. 

        HIGHLIGHT

        The German election results have been the focus in currency markets at the start of this week. Angela Merkel managed to edge a minority victory to ensure her fourth term in charge, however, she did not manage to achieve an outright majority. She will now need to form a coalition in the weeks ahead. This could undermine the strong negotiating position they hold in Europe and within the Brexit negotiations. 

        US DOLLAR

        The US Dollar is stable today as Fed member Dudley stated during a Q & A session that the US economy is in a pretty good place. This week is full of commentary and addresses by Fed members, accordingly the focus this week will be on central banks again rather than economic data. 

        BRITISH POUND

        The Pound has managed to claw back some of it's lost ground from late last week. The Pound had a poor end to the week as Moody's rating agency downgraded the UK sovereign rating to Aa2, citing slower growth and the unstable political environment. 

        EURO

        The single currency has come under pressure after Angela Merkel failed to win a majority of votes to form a government. She will now have to form a coalition to enable any acts to get through parliament.  

        CANADIAN DOLLAR

        The Loonie has followed the price of crude oil higher today, posting small gains across a range of currency pairs.  The focus for the remainder of the week will be the address by Mr. Poloz, the Governor of the Bank of Canada. 

        AUSTRALIAN DOLLAR

        The Aussie Dollar is unchanged today as the focus down south was in the New Zealand elections. The commodity currency was sidelined by the major currencies and the Kiwi Dollar (see featured currency).

        FEATURED CURRENCY

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        By XE Market Analysis September 25, 2017 2:54 pm
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          XE Market Analysis: Asia - Sep 25, 2017

          The dollar firmed up some in N.Y. on Monday, taking the DXY to 92.72 highs, levels last seen on September 5. The notable exception was USD-JPY, which fell from over 112.30 to under 111.50 as N. Korea equated Trump's recent comments to a declaration of war, saying it had the right to shoot down U.S. bombers. EUR-USD on the other hand, fell to near one-month lows of 1.1832, just above its 50-day moving average. Cable followed the euro lower, bottoming at a seven-session low of 1.3431. USD-CAD meanwhile remained on the firmer side, topping at 1.2369, despite four-month highs in WTI crude.

          [EUR, USD]
          EUR-USD faded to near one-month lows of 1.1832, finding support this afternoon ahead of its 50-day moving average, which currently sits at 1.1828. The uncertain German political landscape has weighed on the euro following Merkel's weakened status post-election. In addition, ECB chief Draghi seemed to defend the ECB's still very accommodative policy in a speech to EU lawmakers, revealing few signs that the key drivers at the central bank are willing to commit to an end date for QE yet.

          [USD, JPY]
          USD-JPY managed 112.33 highs in N.Y. trade, unable to test the overnight peak of 112.50 seen in Asia. N. Korea's lack of missile/nuke testing over the weekend supported the pairing, while the BoJ's affirmation of its ultra-loose monetary policy was a driver as well. Key support now comes in at 112.14, which represents the 200-day moving average. USD-JPY later fell through that level, crashing to 111.48 from 112.25 following comments from North Korea's foreign minister, who said Trump's recent comments amount to a declaration of war, and that Pyongyang has the right to shoot down U.S. bombers. Wall Street tumbled on the report as well.

          [GBP, USD]
          Cable slipped to seven-session lows of 1.3431 in N.Y. trade, following EUR-USD lower through the session. This follows a nine big figure rally from the late August low to the high that was seen at 1.3659 last week, fueled by the BoE's signaling that it is likely to take back the "emergency" post-Breixt rate cut of August 2016. Persisting Brexit-related uncertainties, and the fact that inflation readings are set to decline in the coming months, should see cable's upside limited going forward.

          [USD, CHF]
          EUR-CHF came off the boil after clocking a new 32-month high at 1.1623 on Friday. Political uncertainty in Germany took a toll on the euro, while N. Korea's assertion that Trump's recent statements equated to a declaration of war, brought the CHF's safe-haven bona fides into focus. The cross dove from 1.1560 to lows of 1.1412.

          [USD, CAD]
          USD-CAD has remained above tis 20-day moving average of 1.2303 through the session, after closing above the indicator for the past two-sessions. The pairing has topped at 1.2369, despite WTI crude's romp to four-month highs over $51.80. The pairing has been in buy-the-dip mode for a week now, following last Monday's speech from BoC's Lane, who appeared to signal a more gradualist approach to rate hikes ahead. Lane said the Bank is paying close attention to the impact of the stronger Canadian dollar and that possible changes to NAFTA are a key source of uncertainty for Canada's outlook.

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          By XE Market Analysis September 25, 2017 7:23 am
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            XE Market Analysis: North America - Sep 25, 2017

            The euro has come under across-the-board pressure following the German election result, which has left Merkel in place as Chancellor but in a weakened position, heralding a lengthy period of coalition-building talks. The September German Ifo business confidence survey also underwhelmed. EUR-USD dove over 0.6% in logging a three-session low at 1.1881. EUR-JPY and other euro crosses also took a hit, but the dollar pairing bore the brunt with the buck itself a more attractive proposition following the hawkish guidance from the Fed last week. USD-JPY settled near 112.00 after posting highs just above 112.50 during Tokyo trading, reportedly on relief that North Korea hadn't launched any more missiles over the weekend, and with BoJ recommitment to ultra-accommodative monetary policy last week continuing to reverberate.

            [EUR, USD]
            EUR-USD logged a three-session low at 1.1881, which is about a 0.6% loss from Friday's New York closing levels. The prospect of lengthen coalition haggling among German political parties following Sunday's election, along with a sub-forecast outcome of the German Ifo business confidence reading for September, have made the euro a sell in forex markets today. Euro crosses are down in addition to EUR-USD, though the dollar pairing is taking the brunt of selling, with the buck having become a more attractive proposition following last week's hawkish Fed guidance. EUR-USD has near-term resistance at 1.1900-05, and support at 1.1860-61 (which encompasses last week's low).

            [USD, JPY]
            USD-JPY logged a two-session just above 112.50 in Tokyo, with North Korea refraining any fresh missile tests, before ebbing back to around 112.00. The BoJ's reaffirmation at last week's policy meeting of its commitment to yield curve control and ultra-accommodative monetary policy in general was an effective endorsement for yen bears. Caution is advised, however, given Pyongyang's advance to becoming a nuclear power remains a wildcard risk, as the Japanese currency will typically rally amid any heightening in geopolitical tensions. USD-JPY has trend support at 111.90-91.

            [GBP, USD]
            Sterling have early gains after the currency briefly become the chief beneficiary of euro weakness following the German election result. We have been recommending a sell-on-strength tactic. Brext concerns remain, and Moody's downgraded its UK sovereign rating by one level to Aa2 (announcing after UK markets closed on Friday). The follow's a keynote speech by Prime Minister May on Friday, where she signalled that the government is aiming for a hard exit form the EU, rejecting the Norwegian and Canadian models while admitting that she is not pretending that you can have all the advantages of the single market with none of the disadvantages. Cable support is at 1.3480-81, and resistance is at 1.3587-90.

            [USD, CHF]
            EUR-CHF has come off the boil after clocking a new 32-month high at 1.1623 on Friday. Political uncertainty in Germany has taken a toll on the euro. The SNB stated at its quarterly policy review this month that the Swiss franc "remains highly valued," even in light of the relatively sharp weakening the currency saw from late July. We look for EUR-CHF to make an eventual return to the SNB's former floor level, at 1.2000, though this assumes that the political situation in Germany becomes clearer.

            [USD, CAD]
            USD-CAD has settled in the lower 1.23s after bolting to a two-week high of 1.2391 last Wednesday, following the Fed's hawkish guidance, which has helped readdress the recent imbalance between the respective Fed and BoC outlooks. We expect the pair to hold up for now. This comes amid signs that the four-month bear phase in USD-CAD, during which time the U.S. buck lost 12% to the Canadian dollar, was starting to wane. The early-September high at 1.2415 provides an initial target ahead of 1.2500. Support is at 1.2283-85.

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            By XE Market Analysis September 25, 2017 3:23 am
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              XE Market Analysis: Europe - Sep 25, 2017

              The euro has come under pressure following the election in German, which produced the expected win for Merkel but saw her party and the SPD coalition partner lose ground to the nationalist AfD, the upshot of which is political uncertainty as there is no easy coalition options. EUR-USD and euro crosses are likely to remain under pressure as a consequence. EUR-USD logged a low at 1.1986. EUR-GBP has been the sharpest faller, losing over 0.6% and making a 0/8787 low. Elsewhere, the New Zealand dollar has dropped sharp following weekend elections that failed to produce a clear winner. The kiwi is down by nearly 1%. USD-JPY logged a two-session just above 112.50, with North Korea refraining any fresh missile tests.

              [EUR, USD]
              The euro has come under pressure following the election in German, which produced the expected win for Merkel but saw her party and the SPD coalition partner lose ground to the nationalist AfD, the upshot of which is political uncertainty as there is no easy coalition options. EUR-USD and euro crosses are likely to remain under pressure as a consequence. EUR-USD logged a low at 1.1986. EUR-GBP has been the sharpest faller, losing over 0.6% and making a 0/8787 low. We expect the euro to remain offered for now. EUR-USD resistance is at 1.1957-60, and support at 1.1850.

              [USD, JPY]
              USD-JPY logged a two-session just above 112.50, with North Korea refraining any fresh missile tests. The BoJ's reaffirmation, at last week's policy meeting, of its commitment to yield curve control and ultra-accommodative monetary policy in general was an effective endorsement for yen bears. Caution is advised, however, given North Korea's advance to becoming a nuclear power remains a wildcard risk, as the Japanese currency will typically rally amid any heightening in geopolitical tensions. USD-JPY has trend support at 111.90-91.

              [GBP, USD]
              Sterling has rallied in early-week trading, being a chief benefactor of euro weakness following the German election result. We don't recommend following sterling higher. Brext concerns will remain, and Moody's downgraded its UK sovereign rating by one level to Aa2. The follow's a keynote speech by Prime Minister May on Friday, where she signalled that the government is aiming for a hard exit form the EU, rejecting the Norwegian and Canadian models as being unsatisfactory for the UK while admitting that she is not pretending that you can have all the advantages of the single market with none of the disadvantages.

              [USD, CHF]
              EUR-CHF has come off the boil after clocking a new 32-month high at 1.1623 on Friday. Political uncertainty in Germany has taken a toll on the euro. The SNB stated at its quarterly policy review this month that the Swiss franc "remains highly valued," even in light of the relatively sharp weakening the currency saw from late July. We look for EUR-CHF to make an eventual return to the SNB's former floor level, at 1.2000, though this assumes that the political situation in Germany becomes clearer.

              [USD, CAD]
              USD-CAD has settled in the lower 1.23s after bolting to a two-week high of 1.2391 last Wednesday, following the Fed's hawkish guidance, which has helped readdress the recent imbalance between the respective Fed and BoC outlooks. We expect the pair to hold up for now. This comes amid signs that the four-month bear phase in USD-CAD, during which time the U.S. buck lost 12% to the Canadian dollar, was starting to wane. The early-September high at 1.2415 provides an initial target ahead of 1.2500. Support is at 1.2283-85.

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              By HaleStewart September 24, 2017 8:14 am
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              International Economic Week in Review: The Positive Trend Continues

                          The OECD released their latest global growth forecast this week, calling for a slight uptick in overall activity.  OECD GDP is projected to be 3.5% this year – the highest in four years.  Russia and Brazil are projected to grow as well.  But global structural issues remain.  Trade and investment are still weak.  The OECD argues week capital expenditures are a root cause of low employment growth, which is contributing to lower spending.  Additionally, the report states that weak supply growth – not stronger demand -- is the largest contributor to declining global slack.  But despite the reports misgivings about certain growth aspects, the overall increase is projections is welcome news to the financial community.

                          The Bank of Japan maintained their current interest rate posture in their latest policy announcement.  One of the more interesting aspects of the banks policy analysis is their focus on income, where they routinely speak of two “virtuous cycles:”

              “On the domestic demand side, business fixed investment has been on a moderate increasing trend with corporate profits improving. Private consumption has increased its resilience against the background of steady improvement in the employment and income situation.    

              Here, they’re relying on standard Keynesian analysis: rising business income leads to higher investment and lower unemployment creates higher income, leading to increased consumption.  They have consistently expressed their belief in this relationship for most of the Abenomics experiment. 

                          EU news was light.  Inflation increased .2% to 1.5%, which is hardly enough to warrant inflationary concerns.   Markit released their latest numbers, all of which increased: manufacturing was up .8 to 58.2; services increased .9 to 55.6 and the composite index rose a full point to 56.7.  The reports internals point to continued stronger growth: new orders and manufacturing output were the strongest since 4/11; rising exports and backlogs indicates stronger demand and employment increased at a record pace.  Overall, it appears overall output is picking up at a stronger pace.

                          Canadian news continues to impress.  Inflation is low; the latest reading was a paltry 1.4%.  The following chart from the report shows that overall CPI has only been greater than or equal to 2% twice since 4Q14:

               

              Retail sales continue to rise, this time by 4%.  The overall trend for Canadian consumer spending points towards continued expansion:

                          The RBA released their latest meeting minutes.  After noting strong employment growth but weak wage pressures, they offered the following analysis of the macroeconomy:

              Members noted that the national accounts for the June quarter would be released the day after the meeting and that an increase in the quarterly growth rate of GDP was likely. Solid growth in retail sales suggested that household consumption growth was likely to have risen in the June quarter. However, retailers had discounted prices to achieve sales, which meant that growth in nominal retail sales had been more modest.

              Non-mining business investment was expected to have increased in the June quarter, based on recent data. Forward-looking indicators such as capacity utilisation and investment intentions from business surveys suggested a further pick-up was in prospect, consistent with the Bank's forecast for growth in non-mining investment to strengthen gradually. Non-residential building approvals had picked up strongly over preceding months and non-mining investment intentions for 2017/18 reported in the ABS capital expenditure survey had been revised upwards. The data still pointed to modest growth at best, but the survey covers only around half of non-mining investment; growth in investment in the other parts of the non-mining sector, such as education and health, had been stronger.

              In short, the Australian goldilocks economy continues.  Thanks to their symbiotic relationship with China, they avoided global recession of 2007-2009.  But their economy is still rebalancing from one that is heavily reliant on mining and to a lesser extent housing, to one more dependent on consumption.

                          Finally, we have the UK, where the only data released as retail sales.  There were up 1$ M/M and 2.4% Y/Y.  The multi-year trend remains positive:

                   Global economic news continues its bullish trend.  Abenomics has finally taken hold to some extent in the Japanese economy.  Australia continues to consistently grow.  Canada has clearly emerged from its mild recession. The EU has emerged from its post-recession weakness.  Finally, the UK has avoided.  All that matters now is consistency. 

                   Hale Stewart is a tax attorney, Houston, Texas and investment advisor with Thompson Creek Wealth Managers. 

               

               

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              By HaleStewart September 24, 2017 8:06 am
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              US Equity and Economic Week in Review: Hurricane Damage Looks To Be Contained

                          There are four elements of a time series: the actual trend (which is determined using moving averages of various lengths), cyclical movements (regular events that occur over more than 12-months), seasonal movements (regular events that occur over less than 12 months) and irregular events.  Hurricanes Irma and Harvey provide an excellent opportunity to revisit the potential impact of irregular movements on a time series – this time focusing on initial unemployment claims, which have an excellent track record as a leading indicator.  If a recent spike becomes longer-lasting, it could mean the economy is slowing down.   

                          Here are two charts from the latest report from the Department of Labor:

               

              The top chart is the raw, non-adjusted data (in red).  Hurricane Harvey caused a spike a few weeks ago, but that has since moved lower.  The bottom chart shows the seasonally adjusted weekly number (the dashed blue line) and the 4-week moving average (in red).  The weekly claims are already coming down.  The 4-week moving average will continue to move higher in the next few weeks but so long as the seasonally adjusted number continues moving lower the 4-week moving average will follow. 

              The following table places the above charts into numerical context:

              The non-seasonally adjusted number was 251,000 in early September.  It has since moved lower to 212,000.  While the seasonally-adjusted number increased to 298,000 in early September, it has since declined to 259,000. 

                          A large amount of housing market data was released this week.  Building permits increased 5.7% M/M and 8.3% Y/Y. 

              But the 1-unit subset was -1.5% M/M although it increased 7.7% Y/Y.  The following chart breaks the data down by Census region:

              Three areas – the West, South, and Northeast – are moving sideways.  The Midwest (in blue) has been declining since the beginning of the year.  The NAHB housing market index – also released this week -- confirmed regional softness.  The Midwest fell from 72 in March to 59 in September.  Existing home sales -- which were also released this week -- were off 1.7% M/M but up .2% Y/Y.  This number is now down in 4 of the last 5 months.  But that is probably the result of very low inventory – there are only 3.9 months of supply at the current sales pace.        

                          Economic Conclusion: While the economy experienced two very disruptive events in Hurricanes Irma and Harvey, their impact on one key economic metric is already dissipating.  The housing market is still in good shape.  While the overall pace of activity is now moving sideways, that could simply indicate supply and demand are aligned.  Low interest rates and a strong job market should continue to provide the market with sufficient buyers.

                          Market overview: This was an slightly odd week for market returns.  Despite the headlines of “record high,” the SPYs were up a paltry .1% on the week while the QQQs were down almost 1%.  On the positive side, the IWMs were up slightly over 1%. 

                          This week, let’s look at the weekly charts, because they all contain one important characteristic:

              All three charts – the SPYs (top), the QQQs (middle) and IWMs (bottom) – all have one thing in common: declining momentum.  The MACD on each chart has been declining for at least several months (the QQQs), 2 quarters (the SPYs) or the entire trading year (the IWMs).  This is not fatal; in fact, all three averages have experienced solid gains since the first of the year.  That’s due to a solid support from fundamentals: the economy continues to grow and corporate earnings are increasing at strong rates.  But when you look closely at the QQQs and especially the IWMs, you’ll see a declining slope.  In the case of the IWMs, also note that most of their gain occurred in the first quarter while we now approach the 4th quarter.        

                   We're back where we've been for the last few years -- an expensive market at the end of an economic cycle.  Invest cautiously.  

                   Hale Stewart is a tax attorney, Houston, Texas and investment advisor with Thompson Creek Wealth Managers.

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              By New_Deal_democrat September 23, 2017 11:01 am
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              Weekly Indicators: housing neutral but stocks and jobless claims near records edition
              August data included an increase in the Index of Leading Indicators, helped in part by an increase in housing permits and starts.  Existing homes sales declined.
               
              My usual note: I look at the high frequency weekly indicators because while they can be very noisy, they provide a good Now-cast of the economy, and will telegraph the maintenance or change in the economy well before monthly or quarterly data is available.  They are also an excellent way to "mark your beliefs to market." 
               
              In general I go in order of long leading indicators, then short leading indicators, then coincident indicators.

               

              Interest rates and credit spreads

              • BAA corporate bond index 4.32% +0.01% w/w (12 mo. high 4.90%. 12 mo. low 4.15%)
              • 10 year treasury bonds 2.26% +0.06% w/w 
              • Credit spread 2.06% down -0.05% w/w 
              Yield curve, 10 year minus 2 year:
              • 0.83%, unchanged w/w
              30 year conventional mortgage rate
              • 3.97%, up +0.03% w/w (1 year high was 4.39%, 1 year low 3.37%)

              Yields on treasuries and mortgage rates made new 12 month highs in December and revisited that high earlier this year, but the trend for most of this year has been a decline  to improving neutrals.  Corporate bonds remain neutral. Spreads remain very positive. The yield curve remains positive also.

               

              Housing

               

              Mortgage applications 

               

              • purchase applications down -11% w/w
              • purchase applications up +2% YoY
              • refinance applications down -9% w/w
               
              Real Estate loans
              • Down -0.3% w/w 
              • Up +3.8% YoY

              Purchase mortgage applications have been surprisingly positive for most weeks this year, while refi applications have remained near multi-year lows. This week the YoY change for purchase mortgages was small enough, however, to cause that metric to change from positive to neutral.

               

              Real estate loans had been firmly positive for over 3 1/2 years, but the rate of growth (of this cumulative measure) declined sufficiently for the last few months for loans to become a neutral.

               

              Money supply

              M1

              • +0.4% w/w
              • +1.2% m/m
              • +5.5% YoY Real M1
              M2
              • +0.2% w/w  
              • +0.4% m/m
              • +3.3% YoY Real M2 

              Both real M1 and real M2 were positive almost all last year.  Both recently decelerated substantially, but remain positives.

               

              Credit conditions (from the Chicago Fed) 

               

              • Financial Conditions Index down -0.01 to -0.86
              • Adjusted Index (removing background economic conditions) down -0.02 to -0.60
              • Leverage subindex up +0.01 to -0.51
              The Chicago Fed updated and changed the Adjusted Index several weeks ago, so that its break-even point appears to be -0.25.  In the leverage index, a negative number is good, a positive poor. The historical breakeven point has been -0.5 for the unadjusted Index. All three metrics presently show looseness and so are positives for the economy.
               

              Trade weighted US$

              • Down -0.82 to 117.36 w/w, -3.5% YoY (one week ago) (Broad)
              • Up +0.32to 92.14 w/w, -3.5% YoY (yesterday) (major currencies)

               

              The US$ appreciated about 20% between mid-2014 and mid-2015.  It went mainly sideways since then until spiking higher after the US presidential election. With a few exceptions as to major currencies, it was neutral for about 5 months before turning positive several months ago.

               

              Commodiy prices

              JoC ECRI

              • Up +0.64 to 109.12 w/w
              • Up +13.70 YoY
              BBG Industrial metals ETF 
              • 125.33 up +0.10 w/w, up +24.7% YoY
              Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the election.  ECRI briefly turned down enough to be downgraded to neutral, but both are again positive.

               

              Stock prices S&P 500

               

              • Up +0.1% w/w to 2502.22  (new intraweek all time high this week)
              Stock prices are positive, having made a string of new all-time highs beginning over one year ago.
               

              Regional Fed New Orders Indexes

              (*indicates report this week) 

              • Empire State up +4.3  to +24.9
              • *Philly up +9.2 to +29.5
              • Richmond down -1 to +17
              • Kansas City up +15 to +25
              • Dallas down -2.3 to +14.3
              • Month over month rolling average: up +1 to +21
              The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction. These have turned more positive in the last two month.

               

              Employment metrics

               Initial jobless claims

              • 259,000 down -23,000
              • 4 week average 268,750 up +18,500
              • Hurricane-adjusted (one week ago) down -10.000 to 229,000

               

              Despite the hurricane-related increase in the last several weeks, Initial claims remain well within the range of a normal economic expansion, as does the 4 week average. In fact, the hurricane adjusted number is the lowest for this entire expansion but for one week earlier this year.

               

              The American Staffing Association Index

               

              • Unchanged at 96 w/w
              • Up +1.02 YoY

              This index was generally neutral from May 2016 until the end of the year, and has been positive with a few exceptions since the beginning of this year.

               

              Tax Withholding

              • $140.3 B for the first 14 days of September 2017 vs. $131.9 B one year ago, up +$8.4 B or +6.4%
              • $181.5 B for the last 20 reporting days vs. $170.7 B one year ago, up +$10.8 B or +6.3%

              After being positive through most of 2014, these decelerated and even occasionally were  negative, in late 2015 through the first part of 2016.  With the exception of August, 2017 has shown marked improvement.

               

              Oil prices and usage

              • Oil up +$0.80 to $50.63 w/w,  down -0.49% YoY
              • Gas prices down -$0.05 to $2.63 w/w, up +$0.41 YoY
              • Usage 4 week average down -0.3% YoY

               

              The price of gas bottomed about 21 months ago at $1.69.  With the exception of July, prices generally went sideways with a slight increasing trend for the last year.  Usage turned negative in the first half of this year, but subsequently improved, and for most of the last two months turned positive again. Prices appear still to be affected by Hurricane Harvey.

               

              Bank lending rates

               

              Both TED and LIBOR rose since the beginning of last year to the point where both were usually negatives, although there were some wild fluctuations.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  The TED spread has turned very positive for the last several months. Meanwhile LIBOR has generally turned more and more negative.

               

              Consumer spending 

              • Johnson Redbook up +3.6% YoY
              • Goldman Sachs up +0.1% w/w, up +2.6% YoY

               

              Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat in 2016, and more markedly so in the last several months.  Both were positive again this week.

               

              Transport

              Railroad transport

              • Carloads down -3.6% YoY
              • loads ex-coal down -4.6% YoY
              • Intermodal units up +0.9% YoY
              • Total loads down -1.4% YoY

              Shipping transport

              Rail turned negative in 2015 and fell even more sharply in spring 2016. Since summer 2016, rail improved to neutral and then generally positive since November 2016. Over the last two months, it has been more mixed. It has probably also been affected by the hurricanes.

              Harpex recently declined to repeated multi-year lows, then came back all the way to positive, declined again, but in the last several months has come all the way back to positive again. BDI also surged back to being a positive, declined back to neutral earlier this year, but reently turned up again, and this week made a 3 year high. I am wary of reading too much into price indexes like this, since they are heavily influenced by supply (as in, a huge overbuilding of ships in the last decade) as well as demand.

              Steel production

               

              • Up +0.7% w/w
              • Up +9.7% YoY

              Steel production had generally been in a decelerating uptrend through early 2014, then gradually worsened through the end of 2015. It improved from negative to "less bad" to positive in 2016 and has generally remained positive this year, although during early summer, it alternated between positive and negative.  It has been more positive in the last several months.

               
               

              SUMMARY: 

               

              Corporate bonds, treasury yields, and mortgage rates have all remain neutral, as does  growth in real estate loans. The yield curve, money supply, and the two more leading Chicago Fed Financial Conditions Indexes remain positive. Refinance mortgage applications are the sole negative. The one change this week is that purchase mortgage applications eased enough to go from positive to neutral.

               

              Short leading indicators, including stock prices, industrial metals, the regional Fed new orders indexes, spreads, financial conditions, staffing, the US$, and oil and gas prices are all positive. Jobless claims nominally are neutral, but adjusted for the impact of Harvey remain very positive. Gas usage is back to a slight negative.

               

              Among the coincident indicators, positives included consumer spending, steel, the TED spread, tax withholding, the Baltic Dry Index and Harpex.  LIBOR remains negative. Rail, likely affected by the hurricanes, was negative except for intermodal.

               

              The story remains about the same. The economy appears in very good shape over the near term. Over the longer term it is neutral to positive, as all housing data and interest rates have become neutral, while other long leading indicators remains positive.

               

              Have a nice weekend!

              XE Currency Blog

              Topics4602 Posts4647
              By XE Market Analysis September 22, 2017 2:18 pm
                XE Market Analysis's picture
                XE Market Analysis Posts: 3133
                XE Market Analysis: Asia - Sep 22, 2017

                The dollar was marginally firmer in N.Y. trade on Friday, with end of week position squaring behind the move. EUR-USD slipped under 1.1940 from over 1.1980 at the open, while USD-JPY stumbled early, reportedly on pre-weekend safe-haven yen buying the driver. The pairing later recovered the 112 handle. USD-CAD spiked up on softer Canada CPI and retail sales data, topping over 1.2350 from 1.2255 lows. Cable took a hit on PM May's speech in Florence, where she affirmed that the government is aiming for a hard Brexit, though she also announced that she wants a two-year "implementation period." Cable fell to 1.3488 low from over 1.3580 before recovering some.

                [EUR, USD]
                EUR-USD faded from session highs of 1.1983 to a 1.1938 low, now finding a few buyers into the 1.1939 20-day moving average. The ECB's Draghi said ahead of the open the EU is "not there" yet on inflation and "that is why monetary policy remains extraordinarily accommodative". Divergent Fed and ECB policy paths should keep the euro pressured for the foreseeable future.

                [USD, JPY]
                USD-JPY struggled to hold the 112 handle through the N.Y. session, peaking at 112.17 early, before bottoming at 111.86. Given the ongoing N. Korea situation, and Pyongyang's latest threat to detonate a hydrogen bomb over the Pacific, safe-haven yen buying into the weekend has largely been expected. The pairing is still higher for the week, gaining earlier in the week on a hawkish FOMC outcome, and a uber-dovish BoJ meeting outcome.

                [GBP, USD]
                Sterling shed about 0.5% as PM May spoke in Florence, where she has rejected the Norwegian and Canadian models as being unsatisfactory for the UK, admitting that she is not pretending that you can have all the advantages of the single market with none of the disadvantages. Cable dove to a low of 1.3487 from levels near 1.3580, subsequently clawing back to around 1.3510.

                [USD, CHF]
                EUR-CHF has remained buoyant, posting a new 32-month high of 1.1623. An ebb in geopolitical tensions along with last week's SNB 's post-policy meeting guidance, where the central bank, while admitting that exchange rate overvaluation is now less acute, stated that it would remain willing to "intervene in FX markets as necessary" which is "essential in order to reduce the attractiveness of the Swiss franc investment and thus ease pressure on the currency." The SNB said that the currency "remains highly valued," even in light of the relatively sharp weakening the currency saw from late July.

                [USD, CAD]
                USD-CAD rallied to 1.2319 from 1.2255 following the Canadian CPI and retail sales figures, where the former was a bit light overall, and the latter missing the mark on an ex-auto basis. The pairing had been steady overnight, ranging between 1.2250 and 1.2334 in early Asia. WTI crude prices pulled back some, providing additional support. Given the prospects for two more BoC rate hike into year end, we continue to see the pairing in sell-the-rally mode.

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