Monday, December 17, 2007
By Lisa Twaronite, MarketWatch
SAN FRANCISCO (MarketWatch) -- The dollar failed to maintain its early gains Monday, as sagging stocks and a weak home-builders index reading offset bullish U.S. fund inflow data and weak data from the euro zone. U.S. home builders remained extremely pessimistic in December, with the home-builders' housing market index at 19 for the third straight month in December, matching the lowest reading ever in the 22-year history of the index released by the National Association of Home Builders and Wells Fargo. The reading was in line with expectations. See Economic Report. "The NAHB housing market index remained at record lows in December, which won't help dollar bulls much," wrote analysts at Action Economics. The dollar started the U.S. session on firm footing, after Treasury International Capital data revealed stronger-than-expected foreign appetite for U.S. funds in October.
The TICS report showed net inflow into U.S. financial assets was $97.8 billion, compared with a revised $32.8 billion outflow in September, and the inflow into long-term assets was $114 billion. But analysts said the data weren't enough to herald a trend reversal. "While today's TICS report is unquestionably U.S. dollar-positive, the real question remains if and when foreign investment returns to U.S. deposits and short-term securities. Continued net outflow will be an ongoing drag on the greenback and limit any corrective upside potential," said Michael Woolfolk, senior currency strategist, the Bank of New York Mellon. Also Monday, data showed that the U.S. current-account deficit narrowed in the third quarter to $178.5 billion, or 5.1% of gross domestic product. See Economic Report. But a separate report from the New York Federal Reserve showed factory growth in the region slowed in December to its lowest reading since May.
The dollar index, which tracks the greenback against a basket of currencies, was at 77.390, down from 77.435 in late U.S. trading Friday.
The British pound was at $2.0200, compared with $2.0156 late Friday.
Against Japan's currency, the dollar was buying 112.93 yen compared with 113.35 yen Friday. The euro was trading at $1.4393, down from $1.4418 in late U.S. trading Friday, but off a session low of $1.4329.
Earlier Monday, a measure of economic output in countries that use the euro as their currency slumped to the lowest seen in more than two years. The RBS/NTC Economics flash euro-zone composite output fell to a reading of 53.3 in December from 54.1 in November, a 28-month low and the fifth drop in six months. See full story.
On Wall Street Monday, stocks closed sharply lower, after Moody's Investors Services warned it could lower bond-insurer credit ratings because of subprime losses and as Alan Greenspan, the former Federal Reserve chairman, warned of a possible U.S. recession. See Market Snapshot.
Late Friday, Moody's warned that the Triple-A ratings of several leading bond insurers could be downgraded after it reviews the companies' exposure to potential subprime mortgage losses. See full story.
In televised interviews Sunday, Greenspan, the former Fed chairman, warned of the possibility of stagflation, when prices rise at the same time as the economy cools, and said there was a 50-50 chance of a U.S. recession. The U.S. Federal Reserve held its first Term Auction Facility on Monday, with the results scheduled to be released Wednesday. The minimum bid rate for the $20 billion 28-day loan was set at 4.17%, below the Fed's discount rate of 4.75%.
The auction was the first of three as part of a plan unveiled Wednesday last week, to add $40 billion in liquidity to global financial markets in coordinated steps from the European Central Bank, the Bank of England, the Bank of Canada and the Swiss National Bank. Treasurys rallied on Monday, sending yields lower.