The market is risk averse during the US session with stocks and oil dropping, and the US dollar strengthening. The EUR weakened significantly, and EURUSD has broken its support neat 1.3450, reaching a new 10 month low. Unusually, the JPY has weakened while the USD strengthened. This is not the normal correlation that we see.

(Reuters) – Fitch Ratings cut Portugal’s sovereign credit rating by one notch to AA- on Wednesday, citing budgetary underperformance in 2009 and warning that a similar outcome this year and next could cause another downgrade.

The change underlined concerns that the debt troubles that have afflicted Greece will move to other of the euro zone’s weaker economies, and it drove European stocks and an already battered single currency lower.

Read the full article on Reuters.com
Fitch downgrades Portugal on budget concerns

March 24 (Bloomberg) — Sales of new homes in the U.S. unexpectedly fell in February to a record low as blizzards, unemployment and foreclosures depressed the market.

Purchases decreased 2.2 percent to an annual pace of 308,000, figures from the Commerce Department showed today in Washington. The median sales price climbed by the most in more than two years.

Read the full article on Bloomberg.com
Sales of New U.S. Homes Dropped to Lowest on Record

India raising rates has pulled US stocks down based on risk aversion to the sentiment that growth will be impeded. As expected based on their normal correlations, this has strengthened the USD and JPY against the other major currencies.

March 19 (Bloomberg) — U.S. stocks declined, ending an eight-day winning streak for the Dow Jones Industrial Average, as India’s unexpected interest rate boost spurred speculation withdrawals of economic stimulus will curtail global growth.

Read the full article on Bloomberg.com
U.S. Stocks Drop as India Raises Rates for First Time Since ’08

Yesterday the Bank of Japan left rates unchanged at 0.1 percent as expected. A split vote is bringing some uncertainty into future decisions however.

The government has prodded the BOJ for weeks to ease policy, a tactic analysts say is aimed at preventing a rise in the yen from derailing an export-driven recovery and deepening deflation.

The BOJ doubled to 20 trillion yen ($221 billion) the funds available to banks for three-month loans at the policy rate of 0.1 percent. The outcome was in line with expectations.

Read the full article on Reuters.com
BOJ split vote raises doubts about future easing

As we have predicted in the past, the economy is not growing at a pace that has required the Federal Reserve to raise rates. Instead, any growth has been moderate and allowed the Fed to stick to its plan of leaving rates low for an extended period of time.

With the Fed’s hands tied on rates, this will continue to pour cheap liquidity into the markets. So absent poor data, expect the USD to weaken and assets priced in USD (e.g. US stocks, gold, oil) to rise. The USD is weak, but may not be as weak as certain currencies or assets, so it’s all relative. Look for opportunities to short the USD against a stronger asset (e.g. gold and oil) or a stronger currency (e.g. AUD and CAD).

(Reuters) – After a growth spurt at the end of 2009, the U.S. economy will slow in the months ahead, keeping the Federal Reserve from raising borrowing costs until the final three months of the year, a Reuters poll showed.

Read the full article on Reuters.com
GDP seen slowing, tying Fed hands on rates

Good news of China’s exports and the US’s wholesale inventories are green shoots that the global economy is recovering and strengthening. This has led to risk appetite and rallied stocks, and oil.

Of course, this recovery and strength may be dependent upon the artificially low interest rates and stimulus. Longer term, it is yet to be determined if the recovery and strength can hold when rates are raised.

March 10 (Bloomberg) — Stocks rose, erasing the 2010 loss for a gauge of emerging markets, while Treasuries and the yen fell as data on Chinese exports and U.S. wholesale inventories bolstered optimism the global economy is strengthening.

Read the full article on Bloomberg.com
Stocks Climb as Treasuries, Pound Retreat; Dollar Trims Gains

US Non-Farm Employment Change came in better than expected, reporting a loss of 36,000 jobs in February. Expectations were to lose 56,000 jobs, so the market was pleasantly surprised.

The loss in jobs was not significant enough to alter the unemployment rate, which remained unchanged at 9.7 percent. Expectations were 9.8 percent, so it just slightly beat expectations.

The U-6 measure of unemployment, which is much broader than the official U-3, reported the rate at 16.8 percent. This was worse than the previous U-6 report at 16.5 percent for January.

“Employment fell in construction and information, while temporary help services added jobs. Severe winter weather in parts of the country may have affected payroll employment and hours; however, it is not possible to quantify precisely the net impact of the winter storms on these measures.”

On the news, US stocks, oil, and gold all rallied. So as one might expect, the USD weakened. As often is the case, good news (or better than expected news) for the US results in a weaker dollar as it spurs risk appetite into other assets. One exception is against the JPY as USDJPY has shot up well above 90.

Source: Bureau of Labor Statistics

Feb. 26 (Bloomberg) — Sales of previously owned U.S. homes unexpectedly declined in January for a second month, signaling the government’s extension of a tax credit is being limited by a lack of job growth.

Purchases fell 7.2 percent, the second-largest decline ever, to an annual pace of 5.05 million, the National Association of Realtors said today in Washington. In December, sales decreased a record 16.2 percent. The median sales price was unchanged from the same month last year, the group said.

Read the full article on Bloomberg.com
Sales of Previously Owned Homes Fell 7.2% in January

LONDON (Reuters) – Oil rose toward $79 a barrel on Friday, after sliding more than 2 percent the previous session, as an upwards revision in U.S. gross domestic product for the fourth quarter helped revive lackluster sentiment.

The U.S. economy grew faster than initially thought at 5.9 percent versus 5.7 percent in the fourth quarter, a government report showed on Friday, boosting expectations for fuel demand growth in the world’s top energy consumer.

Read the full article on Reuters.com
Oil rises towards $79 after U.S. GDP data

Feb. 24 (Bloomberg) — U.S. stocks rallied, halting a global retreat, after Federal Reserve Chairman Ben S. Bernanke said the central bank will keep interest rates low to ensure the economic recovery.

Bernanke told Congress that while policy makers will need to tighten monetary policy at some point, the “nascent” economic rebound still requires low interest rates for an extended period. An unexpected drop in new U.S. home sales to a record low underscored the vulnerability of the recovery. Stocks extended gains as the Senate approved a $15 billion plan to give companies tax breaks for hiring the unemployed.

Read the full article on Bloomberg.com
U.S. Stocks, Treasuries Gain, Dollar Falls on Bernanke Remarks