fundamental alert

US Industrial Production Falls by the Most Since 1974

Thursday, 16 October 2008 13:25:41 GMT  |  Terri Belkas, Currency Strategist

Industrial output in the US slumped during the month of September amidst a strike by Boeing employees and multiple hurricanes. In fact, the 2.8 percent drop in production was the sharpest decline since 1974, which bodes ill for US expansion during the second half of the year, especially since capacity utilization - a measure of productivity - fell to a nearly 5-year low of 76.4% from 78.7%. Overall, outside factors may have had an impact on this index, but with the global economic slowdown and financial crisis hurting foreign and domestic demand growth, US output is likely to disappoint regardless.

The news has led to some reversals in the market, as the 8:30 EST release of US CPI helped propel stock market futures and forex carry trades higher. However, we've now seen that the DJIA and S&P 500 actually started the day down slightly, while USD/JPY and EUR/JPY have backed off from their 9:00 EST highs. Overall, it is clear that risk trends remain the primary driver in the markets, with risk aversion being following by stock market declines and JPY and USD strength. On the other hand, indications of market confidence spur stock market gains and USD and JPY weakness.

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