The Euro was on the defensive all day today after Fitch Ratings lowered Portugal’s sovereign credit rating one notch to AA- and warned of further cuts unless the government changes is fiscal course. The equity markets were pressured by the strength in the dollar, and commodities followed suit. The EUR/USD broke through technical support near 1.3450, and is set to test lower support near 1.29.
In US, Durable-goods orders rose a third straight month in February, while a sign of capital spending climbed, indicating U.S. businesses have confidence in the economic recovery. Manufacturers’ orders for goods designed to last at least three years increased 0.5%, to a seasonally adjusted $178.12 billion, according to the Commerce Department. If not for the defense sector, durables would have gone up much higher. Defense-related capital goods orders fell 4.5%. Excluding defense, all other durables goods rose 1.6% in February, after climbing 1.7% during January. Overall January durables surged ahead 3.9%, revised from a previously reported 2.6% increase. Economists surveyed had forecast durables would climb 0.7% in February. Orders for nondefense capital goods excluding aircraft increased by 1.1% last month according to the report. The orders are seen as a barometer of capital spending by businesses. Business spending on equipment and software has climbed significantly, Federal Reserve policymakers said last week in a statement on their latest meeting over interest rates and the economy. In the Housing sector, demand for single-family homes decreased 2.2% from the previous month to a seasonally adjusted annual rate of 308,000, setting a new record low, according to the Commerce Department. Year-over-year, sales were lower by 13.0% from February 2009.
In the United Kingdom, UK gilts and the British pound have suffered in the wake of the Darling’s budget presentation. The UK faces a difficult situation and sterling weakness is the path of least resistance. Even though Darling forecast a lower borrowing need, the Debt Management Office suggested somewhat greater supply than expected (GBP187.3 billion vs. this year’s GBP225.1 billion). Progress on reducing the deficit seems slow compared to plans of the other weaker credits in Europe. This year’s 11.8% deficit will be reduced to 11.1% next year and in 2014/15 be at 4%. Moreover, with the end of QE, the BOE won’t be absorbing any of it.
In what was thought to be a close call the Norwegian central bank left rates unchanged at 1.75%. In its guidance it makes it seem like it was not that close of a call after all, noting that some industries are still contracting and revised up its forecast for unemployment for next year (3.75% vs. 3.5%).
In the commodity space, Crude Oil and Gasoline were under pressure after the DOE released inventory numbers. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 7.3 million barrels from the previous week. At 351.3 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. The market had expected an increase of 1-2 million barrels and the larger than expected build pushed Crude Oil down $1.57 per barrel to $80.34.