Wall Street Goes Bearish As Risk Aversion Returns

[mercaforex]

By Mercaforex

On Monday, the greenback strengthened against the Euro and the British Pound, as the U.S. stock market went bearish. All the main stock markets around the world were influenced by this negative U.S. development. In this sense, the main U.S. indexes suffered losses as fear about delayed economic improvement was felt by analysts around the world. The U.S. Dow Jones went down 186 points while the U.S. S&P 500 fell 24.36 points and the NASDAQ retreated 54.68 points. Yesterday, the Empire State Manufacturing Index was published with a reading of 12.1 well above the estimation of 3.1. A reading above 50 on the Empire State Manufacturing Index indicates an expansion. Also remember that the TIC Long-Term Purchases showed a number of 90.7 billion, when analysts awaited a number of 17. 7 billion. These readings were not enough to change the bearish trend in the market. The NAHB Housing Market Index which determines the demand outlook of single-family home builders was published yesterday showing a number of 18 as estimated by analysts. Today the parade of Housing Market data will continue.

As for today, we are waiting the Building Permits numbers, which determines the level of new residential building permits issued, and is estimated to come in at 0.58 billion. Also during today’s trading session, the Producer Price Index (PPI) will be published and is estimated at minus -0.2%. The PPI determines the rate of inflation experienced by manufacturers when purchasing goods and services. Also the Core PPI which is a derivative of the Producer Price Index that omits the Food and Energy items will be published today, with less impact on the market. Finally, today the Housing Starts will be published, which determine the annualized level of new residential buildings that began construction during the last month, and is forecasted at 0.6 million. These readings of the Housing Market are key numbers today, and we should remember that one of the main factors that brought the onset of the U.S. crisis were the developments of this single and unique sector. Yesterday the Federal Reserve expressed its will to extend the TALF program mid 2010 - a move intended to improve credit in the real estate sector. The U.S Treasury department together with the Fed announced the extension of the program until the 30th of June and to the 31th of March regarding toxic assets. Nevertheless, it is important to note that the U.S. dollar may go bearish long term, because a few economical hopes we are watching on the horizon such as Japan, Germany and France starting to show signs of recovery. If U.S. economical data and that of other countries continue to spread confidence and optimism, then risk appetite will support currencies like the Euro and the Sterling, and investors will flee safe heaven currencies like the U.S. dollar and the Japanese Yen. Meanwhile, if Wall Street continues to fall, the U.S. dollar will present opportunities for investors.