U.S. Manufacturing Plummets in October
The Institute for Supply Management (ISM) Index fell to 38.9 from 45.5 in September. This decline in the month-to-month result is the most rapid decline in the ISM Index in 26 years and can be traced to difficulties both consumers and manufacturers are facing to obtain credit as well as reduced demand for American products in global markets.
The ISM Index uses a base scale of 50 where a of less than 50 means the industry is contracting, while a result exceeding 50, indicates growth. Results are adjusted to take into account seasonal changes in the industry.
The ISM is considered the most accurate gauge of overall factory production Ã¢â‚¬â€œ the information on new orders is especially insightful as it highlights manufacturing activity for the upcoming time period. While not as useful for detecting inflation as the Consumer Price Index, the ISM is still considered to be one of the key indicators of the inflationary pressures in the economy. For these reasons, it is a highly anticipated report. Read more.
Citigroup Warns Pound May Lose 18% to the Yen
Citigroup analysts recommend selling the pound in favor of the yen warning that the pound could lose a further 18% to the Japanese currency. Citing the U.K.’s total debt and liabilities as being nerly five times that of the country’s Gross Domestic Product (GDP), experts suggest that the Bank of England will be forced to “drastically” cut lending rates.
The pound has already lost 15 percent against the yen during the month of October and investors are turning once again to carry trades. When establishing a carry trade, traders invest in the currency of countries with low-borrowing costs while reducing holdings of countries with higher borrowing costs. Currently, Japan and the U.S. – at 0.3 percent and 1.0 percent respectively – offer the lowest rates of the main currencies. By way of contrast, England’s best lending rate is 4.5 percent, and the eurozone is 3.75 percent. Read more.
Crude Oil Futures Fall More Than $3
Crude oil fell today by more than $3 a barrel as the U.S. Institute for Supply Management (ISM) Index shows a continuing and rapid contraction in U.S. manufacturing. This news combined with reduce demand by Asian refineries has traders worried that we could be facing a prolonged global recession that will reduce overall demand for oil.
Oil prices have nosedived since reaching a peak of $147.27 a barrel earlier this year in July. Today’s pullback comes despite a recent move by the Organization of the Petroleum Exporting Countries (OPEC) to reduce daily supplies by a million and a half barrels – OPEC has threatened to impose further reductions if the price continues to fall as the global economic slowdown threatens to claim more victims.
For the month of October, oil futures fell 33 percent setting a new single-month price drop and beating the old record set in February of 1986. Read more.
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