- The dollar advanced on Thursday as risk aversion rose. US Treasury Secretary Timothy Geither said the US wants a strong dollar. China's Prime Minister Wen Jiabao warned the global economic recovery will be uneven. US initial jobless claims fell a more-than-expected 12K to 502K, the lowest level since January 2009. The overbought S&P 500 fell 11.27 to 1,087.24. The dollar index reached a high of 75.77; there are support at the 75 handle and resistance in the 76 area. The yen was pressured by equity weakness. Sterling was little changed. The Canadian dollar fell on lower oil and commodity prices.
- The AUD/USD rose to a new 15-month high on better-than-expected Australian employment growth, but later reversed gains on increasing risk aversion and dropping commodity prices. The pair failed to break the shortterm double top but remained in a strong uptrend. We have been long the AUD/USD since it was at 0.6601. Now we are moving up the stop to 0.8870.
Financial and Economic News and Comments
US & Canada
- There are no signs of a double dip or W recession in the United States. The Globicus/qEcon Research short leading and long leading indexes continue to improve, suggesting that the US economic recovery is on track and economic conditions should progress considerably by the end of Q3 2009. The overall leading economic index' growth rate reached 11.5 in October, its highest level since the end of 1981-82 recession. Both the short and long leading indexes' growth rates were strongly positive in October, at 11.2 and 11.7, respectively, indicating the ongoing US economic expansion is intact for at least the next 6-9 months. Meanwhile, the coincident index, used in determining the length of the recession, has been flat since the early summer. The index made a low in June, rose slightly in July, fell back to the June low in August and rebounded modestly in September. The coincident index' growth rate, since hitting a low of -9.3 in April, had steadily risen, to -5.0 in September. This indicates the recession may be officially declared over in August; however, strong job losses in June may prevent the Dating Committee to choose that date. US GDP rose at a 3.5% annualized rate in Q3 2009, the first expansion in more than a year, and will likely grow at a 4-5% range in Q4.
- The Globicus/qEcon Research leading employment index suggests the US labor market will turn positive soon. Since bottoming in February 2009 at -11.0, the leading employment index' growth rate had improved substantially, to 5.1 in October; thus, pointing to improving employment conditions by the end of 2009 or the beginning of 2010. However, sustainable positive job growth is unlikely to occur until several quarters after the end of the recession. In the 1990 recession it took over a year before positive job growth resumed, while in the 2001 recession it took even longer before employers expanded payrolls. The latest data from the Labor Department showed nonfarm payrolls fell 190K in October after falling 219K in September. The unemployment rate rose to a 26-year high of 10.2% in October and will likely stay at elevated levels into 2010. The high unemployment rate ensures that the Federal Reserve will maintain its extremely easy monetary stance until H2 2010.
- US initial jobless claims in the week ending November 7 decreased a more-than-expected 12,000 to 502,000, the lowest level since January 2009, from the previous week's upwardly revised 514,000, figures from the Labor Department showed. The 4-week moving average of new jobless claims declined 4,500 to 519,750, the lowest level in almost a year. Continuing claims in the week ending October 31 dropped 139,000 to 5,631,000 from the preceding week's upwardly revised 5,770,000. The 4-week moving average of those continuing claims fell 100,750 to 5,790,750. The insured unemployment rate for the week ending October 31 declined to 4.3% from the prior week's 4.4%.
- The US budget deficit widened to $176.4 billion in October, a record 13th straight shortfall and the fifth-largest monthly gap on record, compared with a $155.5 billion deficit in the same month a year earlier, according to the Treasury Department's monthly budget statement.
- Canada's new housing prices rose a more-than-expected 0.5% m/m in September, a third consecutive monthon- month rise and the largest gain since January 2008, after a 0.1% m/m increase in August, data released by Statistics Canada showed. The September month-on-month gain was led by Vancouver (+1.4% m/m), Ottawa-Gatineau (+1.0% m/m), Calgary (+0.6% m/m), Toronto and Oshawa (+0.5% m/m), and Saskatoon (+0.5% m/m). September new housing prices declined 2.7% y/y, following a 3.1% y/y August slide, with the largest year-on-year drops in Western Canada.
- Eurozone industrial production increased a less-than-expected 0.3% m/m in September, a fifth consecutive month-on-month gain, after an upwardly revised 1.2% m/m advance in August, according to IP data from Eurostat. September IP fell 12.9% y/y, the slowest year-on-year fall in nine months, following a revised 15.1% y/y August drop.
- The ZEW-CS Swiss economic expectations index declined to 56.4 in November from 65.0 in October, indicating Switzerland's investor sentiment diminished slightly this month but remained at a high level, according to the latest survey by Credit Suisse in cooperation with the Centre for European Economic Research. Current economic conditions were less pessimistic in November, with the current conditions indicator increasing to -46.2 from October's -55.0.
- Japan's domestic corporate goods prices declined a more-than-expected 0.7% m/m in October after a downwardly revised 0.0% m/m in September, according to the Bank of Japan corporate goods price index. October CGPI fell 6.7% y/y, a tenth consecutive year-on year fall, following September's revised 8.0% y/y decrease.
- Australia's median expected inflation rate declined to 3.2% in November from 3.5% in October, according to the latest Melbourne Institute survey of consumer inflationary expectations.
- Australia's seasonally adjusted employment unexpectedly rose 24,500 to 10,831,600 in October after rising a downwardly revised 39,800 in September, figures from the Australian Bureau of Statistics showed. The unemployment rate rose to 5.8% from 5.7%. Full-time employment increased 2,900 to 7,590,800 in October and part-time employment rose 21,500 to 3,240,800. The participation rate was unchanged at 65.2%.
FX Strategy Update