Brave New World

Market sobers up 30/10/2009

GDP figures don’t have the staying power they once had. Just as talk of a calamitous slump in the UK following the awful GDP numbers on Friday had evaporated by earlier this week, with Sterling recouping its losses, the brief euphoria in the markets after yesterday’s US data evaporated within a matter of hours and with it the US Dollar index recouping most of its losses. This morning’s US economic data has added to the bearish tone in the market. Personal consumption stalled in September after climbing each of the four previous months, while personal income was down 0.5% m/m, compared with a market expectation of a 0.5% rise. The University of Michigan Consumer Confidence survey beat market expectations but was still down to 70.6 in October from  73.5 in September. Overall, a nervousness is creeping into the market as it is looking increasingly unlikely that the consumer, which still accounts for 70% of the US economy, is strong enough to recover without government support. The Dollar has rallied strongly on the bearish sentiment on the economy, reaching a low of 1.4727 in afternoon London trading. Expect further dollar strength in the meantime; at least until the crucial FOMC meeting next week.