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Not so Confident?

Written by A Forex View From Afar on Tuesday, March 25, 2008

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We saw three releases today and all slapped the Market around in one way or another. Both the main US economic components were hit today; the Housing market and Consumers

Consumer Confidence Index numbers hit the screens, showing consumers are starting to get less and less enthusiastic about the future. A bad picture is being created here, since 70% of GDP is based on consumer spending.

consumer confidence

The Consumer Index came at a 5 years low, while the Expectation Index component came at a 35 year low, when Watergate and Oil crises were at their peak. A recession is declared if two or more consecutive quarters with confidence levels are below 100. We are below 100 since April last year. Figure that out.

“Looking ahead, consumers' outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon. The Expectations Index, in fact, is now at a 35-year low (Dec. 1973, 45.2), levels not seen since the Oil Embargo and Watergate."’

In big terms, the Richmond Fed Index draws almost the same picture: future expectations continue to decline. The difference between these two, is that Richmond Fed Index shows current conditions slightly improved. This is the reason why the survey came in at 6 versus the -5 expected. Manufactures complained about higher prices; raw materials increased at the highest rate since 1993.

The S&P/Case-Shiller US National Home Price Index showed that Houses Prices dropped by most ever recorded in January.

Putting these 3 surveys together, a troubled future is seen. All 3 are considered smaller releases in their own right, but they had the power to send Equities from yesterday’s strong gains to the red territory today.

Future expectations play a big role in monetary policy, and these kind of releases, even if they are smaller, may force the Fed to forget (again) about inflation and assure growth by cutting Interest Rates (again). The question then comes as to whether the Fed ready to take the role of the Bank of Japan who are looking to get back towards the 0.25% mark by the Summer it seems.

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