US markets slump on double dip fears as dollar weakens
• US markets slump on double dip fears as dollar weakens• Sterling falters as UK house prices fall for first time since Dec 2009• IMF, EU pull out of Hungary loan talks• Euro retains solid under footing after successful auctions of Spanish and Portuguese debt
The dollar continued its decline against the majors last week as fears of a double dip recession hit US markets. Wall Street plunged on Friday after disappointing economic data and worse than expected corporate earnings prompted fears of a double dip recession. The Dow Jones Industrial average fell 270 points to 10,088—a 2.5% fall and the S + P 500 lost 2.9%. Bank of America led the blue chip slump, falling more than 9%, after disap¬pointing Q2 earnings report. Results from Citigroup and General Electric also missed Wall Street expectations. Google shares plunged 7%. Adding to the fears was disappointing economic data which stoked fears that a recovery in the worlds largest economy was stalling. US consumer confidence tumbled, according to the Univer¬sity of Michigan. Its sentiment index fell to 66.5 in July from 76 at the end of June. This is the lowest level since August 2009 and significantly lower than consensus expectations of a fall to 74. There is an increasing view among investors that evidence shows the US economic recovery is losing momentum. This should be seen as a US dollar-negative, especially after the stabilization of the euro.
Data 13.00: NAHB Housing Market Index expected 16 from 17.
The pound has fallen against the majors this morning after disappointing UK housing data was released, push¬ing sterling lower. The pound is undermined by capital flight on heightened investors risk aversion. Also weigh¬ing are concerns over the negative impact of fiscal tightening on the UK economy. This has seen cable fall back from the $1.54 level seen last week to trade under the $1.53 level this morning. Against the euro we also saw weakness as GBP/EUR fell below the 1.19 mark. UK house asking prices fell for the first time since December 2009 in July, dropping 0.6% on the month following a 0.3% increase in June, according to the UK’s largest property website—Rightmove.
No major data.
The euro is mixed as Europe gets under way Monday but it retains a solid under footing given doubts about the US economy. For now markets look for the eurozone to stabilize. As long as auctions of government debt from eurozone countries to go well, such as the successful auctions last week of Portuguese and Spanish debt, the common currency should keep marching higher. The single currency has managed to push EUR/GBP back over the 0.84 level after hitting 0.8330 last week. Against the dollar the euro had managed to push to the $1.30 level, but has slipped off slightly this morning. Looking ahead to this week, the European bank stress test results are due on Friday 23rd, which should show that Europe’s banks are able to cope with further economic and other shocks.
Data 09.00: E/Zone Current Account expected –3.0B from –5.1B.
• Negotiators for the International Monetary Fund and European Union walked away from talks with Hun¬gary over the weekend, saying Budapest needs to do more to shrink its budget deficit before it can get any more bailout money.
• Oil prices are lower at $75.71 / barrel as sentiment was dampened by weak US economic data.
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