Focus back on US economy - 03-10-08

The dollar took advantage of Euro vulnerability on Thursday and strengthened to fresh 2008 highs beyond 1.38 before a slight correction on Friday.

The US economic data continued the significantly weaker tone. Jobless claims edged high to 497,000 in the latest week from a revised 496,000 previously and this is a level which suggests recessionary conditions. There was also a sharp 4.0% decline in factory orders for August and the recent data has suggested a sudden deterioration.

Wall Street weakened sharply and it was notable that the weakness was concentrated in the large industrial stocks. This trend suggests increased fears over the wider economy and will maintain pressure for lower interest rates, especially if there is a very weak payroll report on Friday.

The US Senate passed the Administrations bail-out package and it will now pass to the House of Representatives for the second time with a vote likely on Friday. There will be strong pressure for the bill to be passed and this is the most likely outcome. Another defeat would result in serious dislocations in asset markets and major currency volatility while there will also be some disappointment if the measures are diluted. Underlying doubts over the package will also continue.

Tim Clayton
Investica Ltd
E-mail: tim.clayton@investica.co.uk
+44 (0) 1452 781001