Dollar edges higher ahead of U.S. durable goods report

© Reuters. U.S. dollar gains ahead of data deluge

The dollar edged higher against its major rivals in pre-holiday trade on Wednesday, as investors awaited the release of U.S. durable goods data due later in the day for further indications on the strength of the economy.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.2% at 98.41 during European morning hours.

The U.S. is to produce data on durable goods orders at 8:30AM ET on Wednesday, amid expectations for a decline of 0.6% in November, following a gain of 2.9% a month earlier, while core orders are forecast to rise 0.1% after increasing 0.5% in October.

In addition, the U.S. is release reports on new home sales, consumer sentiment and crude oil inventories.

Earlier in the day, data showed that U.S. personal spending inched up by a seasonally adjusted 0.3% last month, meeting forecasts. Personal spending for October was revised down to a flat reading from a previously reported gain of 0.1%. Consumer spending is the single biggest source of U.S. economic growth, accounting for as much as two-thirds of economic activity.

The figure, which was to be made public at 8:30AM ET Wednesday along with the agency’s report on personal income, was released early on the Bureau of Economic Analysis’ website.

On Tuesday, data said the U.S. economy grew 2.0% in the third quarter, downwardly revised from a preliminary estimate of 2.1%, but above expectations for 1.9%. A separate report showed that existing home sales tumbled 10.5% to a 19-month low of 4.76 million units in November from 5.32 million a month earlier.

Investors also continued to focus on the crude oil market, as prices ticked higher for the second straight day, boosting global stocks and supporting sentiment.

Trading volumes are expected to remain light as many traders already closed books before the end of the year, reducing liquidity in the market and increasing volatility. U.S. markets close early Thursday, Christmas Eve, and are shut Friday for Christmas Day.

EUR/USD ticks up, as dollar weakens amid soft U.S. GDP data

EUR/USD gained nearly 0.40% on Tuesday to close above 1.09

Investing EUR/USD rose moderately on Tuesday on a thin day of trading, as soft U.S. GDP data weighed heavily on a steadily weakening dollar.

The currency pair traded in a tight range between 1.0902 and 1.0984 before settling at 1.0954, up 0.0039 or 0.36% on the session. The euro is enjoying a modest three-day winning streak versus the dollar and is up by 0.26% against its American counterpart since the Federal Reserve raised short-term interest rates for the first time in nearly a decade last week. More broadly, the euro is up by more than 3.20% against the dollar since the European Central Bank rattled global currency markets by only instituting limited easing measures with comprehensive asset-purchasing program at a closely-watched meeting at the start of the month. The dollar is currently down by nearly 2% against a basket of rivals in December, suffering its worst month since April.

EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1496, the high from Oct. 15.

The moves by the Fed and the ECB over the last several weeks could portend further divergence between the two major central banks, as the Fed completes the early stages of its first tightening cycle since 2004. Earlier this week, analysts from Charles Schwab(N:SCHW) said 20 central banks, representing roughly one-third of global GDP, hiked interest rates in 2015, marking a sharp divergence from recent monetary policy over the past several years. More importantly, the analysts noted that “volatility may result as the widening divergence contributes to the challenges facing some markets.” Markets throughout the euro zone may be equipped to handle the shifts in monetary policy, according to Schwab, amid signs of improving economic and financial growth.

On Tuesday morning, the U.S. Department of Commerce’s Bureau of Economic Analysis (BEA) said real gross domestic product in the third quarter increased at a rate of 2.0%, down sharply from annual GDP growth of 3.9% in the second quarter of 2015. The BEA’s third estimate released on Tuesday also fell slightly from its second estimate of 2.1% growth issued last month. Real GDP measures the value of the goods and services produced by a nation’s economy minus the goods and services used up in production, adjusted for price changes.

The BEA noted in its statement that the mild increase in real GDP is reflected in positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, state and local government spending, residential fixed investment, and exports that were partly offset by a negative contribution from private inventory investment.

At the same time, the deceleration in GDP growth on a quarterly basis denoted a downturn in private inventory investment and exports. Inventory growth was downwardly revised by nearly $5 billion to $85.5 billion, as businesses held inventories down amid slumping sales. Nevertheless, quarterly real GDP fell in line with consensus estimates of growth of 2.0%. The GDP Price Index, meanwhile, increased 1.3% on the quarter, remaining unchanged from the previous quarter.

Investors await Wednesday’s monthly release of the PCE index for November for further indications on the gradual path the Fed may take in its first tightening cycle since 2004. Core PCE inflation, which strips out volatile food and energy prices, has remained below the Fed’s targeted goal of 2% for every month over the last three years. In October, core PCE prices were up by 1.3% on a yearly basis, remaining flat from the prior month’s reading.

In updated inflation forecasts released last week, the Fed projected that inflation will not reach its targeted objective until 2018. Last week, the Federal Open Market Committee (FOMC) raised the target range of its benchmark Federal Funds Rate by 25 basis points to 0.25 and 0.50%.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.35% to an intraday low of 98.01, before closing at 98.18. Earlier this month, the index eclipsed 100.00, reaching its highest level on the calendar year.

Dollar remains broadly lower after downbeat U.S. data

© Reuters.  Dollar holds onto losses as U.S. data weighs

Investing The dollar remained broadly lower against the other major currencies on Tuesday, after the release of downbeat U.S. economic reports dampened demand for the greenback.

Trading volumes were expected to remain limited ahead of the Christmas Holiday.

USD/JPY slid 0.33% to 120.79.

The dollar weakened after the U.S. National Association of Realtors said that existing home sales tumbled 10.5% to a 19-month low of 4.76 million units last month from 5.32 million in October. Analysts had expected existing home sales to rise to 5.35 million units in November.

The data came shortly after the U.S. Commerce Department reported that gross domestic product grew at an annual rate of 2.0% in the three months ending September 30, better than expectations for 1.9%.

Preliminary data initially pegged U.S. growth at 2.1% in the third quarter. The U.S. economy grew 3.9% in the second quarter.

EUR/USD gained 0.55% to 1.0976.

The euro’s gains were expected to remain limited however, as inconclusive elections in Spain over the weekend sparked political concerns.

Spanish Prime Minister Mariano Rajoy said on Monday that his centre-right People’s Party (PP) would talk to rivals in a bid to form a government, but the left-wing parties reportedly said they would not want Rajoy to remain in power.

Elsewhere, the dollar was lower against the pound and the Swiss franc, with GBP/USDdown 0.30% at 1.4841 and with USD/CHF declining 0.51% at 0.9871.

Earlier Tuesday, the U.K. Office for National Statistics reported that public sector net borrowing rose to £13.56 billion in November from £6.75 billion in October, whose figure was revised from a previously estimated £7.47 billion.

Analysts had expected public sector net borrowing to rise to £11.00 billion last month.

The Australian and New Zealand dollars were stronger, with AUD/USD up 0.79% at 0.7248 and with NZD/USD advancing 0.85% to 0.6819.

Meanwhile, USD/CAD slipped 0.23% to trade at 1.3925, still close to Friday’s more than 11-year high of 1.4000.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.40% at 98.04.

Factory Orders Fall for 2nd Straight Month in September

Factory OrdersWASHINGTON — New orders for U.S. factory goods fell for a second straight month in September as the manufacturing sector continues to struggle under the weight of a strong dollar and deep spending cuts by energy companies.

Motor vehicle production, however, remains a bright spot as orders surged in September. That trend is likely to persist as automakers reported Tuesday that sales in October were the best in 14 years.

“This morning’s report provides little new signal on the state of U.S. manufacturing. Demand for many categories of manufactured goods continues to struggle from the effect of a stronger dollar, weak foreign demand and lower energy prices,” said Jesse Hurwitz, an economist at Barclays in New York.

The Commerce Department said new orders for manufactured goods declined 1 percent after a downwardly revised 2.1 percent drop in August. Factory orders were previously reported to have declined 1.7 percent in August.

Orders for automobiles and parts rose 1.5 percent in September after falling 2 percent in August.

Auto sales jumped 13.6 percent in October from a year ago to an annual rate of 18.24 million units, the highest October level since 2001, according to Autodata Corp. Sales rose to a 18.17 million-unit rate in September.

October’s increase suggested that consumer spending remained robust after two straight quarters of strong increases and bolsters expectations of a December interest rate hike from the Federal Reserve.

The dollar firmed against a basket of currencies and stocks on Wall Street rose. U.S. government debt prices fell.

Factory activity, which accounts for about 12 percent of the economy, is also being constrained by efforts by businesses to reduce an inventory overhang and tepid global demand. But the worst could be over for the sector after a report Monday showed new orders rose in October for the first time since July.

The dollar has gained 16.8 percent against the currencies of the United States’ main trading partners since June 2014, which has undercut export growth and weighed on the profits of multinational corporations such as Procter & Gamble (PG) and 3M (MMM).

At the same time, a plunge in oil prices has pressured revenues for oil field companies such as Schlumberger (SLM) and diversified manufacturer Caterpillar (CAT).

Inventories Being Liquidated

The factory orders report also showed a 0.4 percent drop in manufacturing inventories, which was bigger than the government had assumed for its advance third-quarter gross domestic product estimate published last week.

Economists said the factory inventory drop suggested the third-quarter GDP estimate could be lowered by at least one-tenth of a percentage point to a 1.4 percent annual pace when the government publishes its first revision later this month.

A slow pace of inventory accumulation accounted for the bulk of the sharp step-down in growth from the second quarter’s brisk 3.9 percent rate.

Still, the September drop in factory inventories is an encouraging sign for the sector as it suggests orders will rise in the months ahead. The inventories-to-shipments ratio was unchanged at a still lofty 1.35 in September.

“A steady pace of liquidation will eventually boost output as orders move closer to sales and input utilization levels,” said Kevin Cummins, senior economist at RBS in Stamford, Connecticut.

Manufacturers reported Monday a decrease in the share of customers who believed inventories were too high, and a fall in the stock of unsold goods at factories in October.

The Commerce Department also reported that September orders for non-defense capital goods excluding aircraft — seen as a measure of business confidence and spending plans — slipped 0.1 percent instead of the 0.3 percent drop initially reported last month.

This also supports the view that the worst of the manufacturing slump might be over. Shipments of these so-called core capital goods, which are used to calculate business equipment spending in the GDP report, increased 0.5 percent in September as reported last month.

Can Amazon Prime Sign Up Half of U.S. Households by 2020? Illustrations Ahead Of Earnings FiguresAmazon(AMZN) is known for keeping quiet when it comes to numbers on its Prime membership program, but analysts certainly have high hopes for the subscription service.

Ben Schachter, an analyst at Macquarie Securities, recently told The New York Times that by 2020, he expected half of American households would be Prime members. He added that the prediction was conservative. By some estimates, Amazon Prime already reaches about a third of U.S. households.

In 2013, Amazon shared that it had “tens of millions” of Prime members worldwide, and at the end of 2014, the company said global Prime subscriptions were up 53 percent and North America subscriptions were up 50 percent. But beyond those teases, Amazon has remained tight-lipped.

When asked about Prime growth during the third-quarter conference call, Amazon CFO Brian Olsavsky merely said, “We are very happy with the growth, not only in participation, but also purchases and retention, and we had a very successful Prime Day in July that we’re really happy [about].”

The Consumer Intelligence Research Partners estimates that Amazon has reached 44 million U.S. Prime members, and according to analysts at Cowen, U.S. Prime subscriptions reached 40 million in October.

The question now is how much room there is for growth. Schacter, who estimates that Amazon will have at least 40 million Prime subscribers globally by the end of the year and possibly as many as 60 million, sees the U.S. growth trajectory continuing to a point where at least 50 percent of American households have Prime. There are currently about 115 million households in the U.S., according to Census data, which implies that Schachter believes Amazon will reach at least 58 million Prime subscriptions in the U.S. in the next five years.

Schachter didn’t immediately respond to a request for comment for this story.

Other analysts agree seem to suggest this milestone could be reached even sooner.

RBC Capital Markets analyst Mark Mahaney thinks the U.S. number could already be close to 50 million, based on a September survey of 1,617 U.S. consumers in which 40 percent said they were Prime members.

Needham analyst Kerry Rice also believes Prime is well on its way.

“If the estimates are correct that there are 30 to 50 million Prime accounts [in the U.S.], it seems that reaching 58 million households should be achievable,” Rice said. “The implications are certainly positive for Amazon, as Prime members spend significantly more than non-Prime members.”

Prime membership costs $99 a year and includes free two-day shipping along with a number of other benefits like video and music streaming, cloud storage, and access to Prime Now, which delivers select products within an hour.

Assuming Amazon keeps the cost of Prime membership at $99 a year, those potential 58 million households in 2020 could generate as much as $5.7 billion a year in revenue.

But for Amazon, it goes well beyond the annual fee. Prime members tend to spend much more with Amazon than non-Prime members and are incrediblyvaluable to the company.

ITG analyst Steve Weinstein estimated that Prime members spend $1,000 more a year on average compared to non-Prime members, and research firm Millward Brown estimates Prime members are almost five times more likely to make a purchase in the same shopping session compared to non-Prime members.

“What our data suggests is that Prime Members are materially more loyal (more spend, more purchases, more satisfaction, more intent to spend) than non-Prime customers,” RBC’s Mahaney wrote in a note in September. “What is more, our analysis suggests that as Prime Members mature (Year 1, Year 2, Year 3, etc.), they also become materially more loyal (more spend, more purchases, more satisfaction, more intent to spend).”

’12 Days of Christmas’ Items Top

Twelve Days Cost

PITTSBURGH — Lords a-leaping is the U.S. economy slow to recover!

The cost of 10 lords a-leaping increased 3 percent over last year, but nine of the other 12 gifts listed in the carol “The Twelve Days of Christmas” stayed the same price as last year, according to the 32nd annual PNC Wealth Management Christmas Price Index released Monday.

The index is a whimsical way the Pittsburgh-based bank tracks inflation.

The set of gifts spelled out in the final verse of the song would cost $34,131 this year, or 0.6 percent more than the adjusted 2014 price of $33,933. PNC decided to adjust the historic prices of turtle doves and swans after realizing the prices quoted by vendors didn’t reflect the birds’ overall value on the open market over the years.

“The headline, I think, is that inflation in this economy, with the sort of tepid recovery we’ve seen, is almost nonexistent.

“The headline, I think, is that inflation in this economy, with the sort of tepid recovery we’ve seen, is almost nonexistent,” said Jim Dunigan, chief investment officer of PNC’s asset management group.

While the good news is that the price of consumer goods isn’t rising very much, it also means demand for those goods is down, at least partly due to wage stagnation.

The government’s Consumer Price Index has pegged inflation at about 0.2 percent, Dunigan said.

The only other items to increase in price since last year were a partridge in a pear tree and two turtle doves.

The bird in the bush rose 3.5 percent overall, mostly because partridges now cost $25 each, up from $20, because partridges are increasingly popular as gourmet food. Pear trees inched to just under $190 up from $188.

Turtle doves increased 11.5 percent, to $290 from $260, mostly due to increased grain prices that pushed up feed costs.

The lords a-leaping are more expensive because labor costs increased their price to $5,509 from $5,348.

PNC calculates the prices from sources including retailers, bird hatcheries and two Philadelphia dance groups, the Pennsylvania Ballet and Philadanco.

A buyer who purchased all the items each time they are mentioned in the song would spend $155,407.18.

The full set of prices:

  • Partridge, $25; last year: $20
  • Pear tree, $190; last year: $188
  • Two turtle doves, $290; last year: $260
  • Three French hens, $182; last year: same
  • Four calling birds (canaries), $600; last year: same
  • Five gold rings, $750; last year: same
  • Six geese-a-laying, $360; last year: same
  • Seven swans a-swimming, $13,125; last year: same
  • Eight maids a-milking, $58; last year: same
  • Nine ladies dancing (per performance), $7,553; last year: same
  • 10 lords a-leaping (per performance), $5,508; last year: $5,348
  • 11 pipers piping (per performance), $2,635; last year: same
  • 12 drummers drumming (per performance), $2,855; last year: same

For Third Straight Quarter, U.S. CEOs Cautious on Economy

US-FINANCE-ATTCHICAGO — For the third consecutive quarter, U.S. CEOs expressed growing caution about the country’s economic prospects in the short term and more said they expected to curtail capital investments over the next six months, according to a survey released Tuesday.

The Business Roundtable CEO Economic Outlook Index — a composite of CEO projections for sales, investment and hiring plans over the next six months — fell 6.6 to 67.5 points in the fourth quarter, its lowest level in three years.

The long-term average for the index is 80.1 points.

The proportion of CEOs who said they expected their capital spending to decrease over the next six months rose to 27 percent from 20 percent in the third quarter.

Sixty percent of CEOs surveyed said they expected sales to increase over the next six months, down from 63 percent during the previous quarter.

CEOs said that regulation was the top cost pressure facing their business, followed by labor and health care costs.

Randall Stephenson, chairman of the Business Roundtable and CEO of AT&T (T), said in a statement that if “we really want to see the U.S. economy and hiring really take off, Washington needs to adopt a smarter approach to regulation.”