• The dollar rose against most major currencies on Friday as risk appetite moderated and stocks fell. US industrial production rose strongly, but consumer sentiment declined modestly. The S&P 500 index fell 8.88 points to 1,087.68 on disappointing earnings announcements from Bank of America and GE. The yen fell for a second day. The euro declined for the first time this week; eurozone exports dropped the most in seven months and EU officials expressed concerns over the euro's strength and the dollar's weakness. Sterling gained for a second day against the dollar and in cross trades, supported by speculation the Bank of England may pause its quantitative easing policy. The overbought Australian and Canadian dollars fell despite higher commodity prices.

  • After falling to a 14-month low and breaking the important 76-area support earlier in the week, the dollar index rose for the first time today. Negatively correlated with the equity market, the dollar is oversold and the stock market overbought. If the stock market consolidates gains next week, the dollar may get some support from risk aversion. A close above 78 would significantly improve the technical outlook for the dollar.

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Financial and Economic News and Comments

US & Canada

  • US industrial production rose a larger-than-expected 0.7% m/m in September, a third consecutive monthly gain, after an upwardly revised 1.2% m/m advance in August, according to IP data from the Federal Reserve. September IP declined 6.1% y/y. Capacity utilization grew more than expected to 70.5% after August's upwardly revised 69.9%. In Q3 2009, industrial production climbed at a 5.2% annual rate, the first quarterly gain since Q1 2008 and the largest since Q1 2005. Manufacturing production increased 0.9% m/m in September after rising an upwardly revised 1.2% m/m in August. Output in automotive products rose 7.4% m/m in September after posting monthly gains in July and August that averaged about 11%. Manufacturing production excluding motor vehicles and parts was up 0.5% m/m in September. Manufacturing capacity utilization improved to 67.5% from August's upwardly revised 66.8%.

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  • US consumer confidence unexpectedly fell in October, an indication that consumers remain nervous about a steady yet fragile US economic recovery. The Reuters/University of Michigan US consumer sentiment preliminary index for October declined to 69.4 from 73.5 in September, which was the highest level since January 2008, according to the latest surveys of consumers by Reuters and University of Michigan. The current economic conditions index declined to 72.1 in October from 73.4 in September, which was the highest since September 2008. The consumer expectations index fell to 67.6 from September's 73.5, which was the highest since September 2007.

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  • Net foreign purchases of long-term securities were $28.6 billion in August after $15.3 billion in July, while monthly net TIC flows were $10.2 billion following July's revised -$107.7 billion, the Treasury said.

  • The US government's annual budget deficit jumped to a record $1.42 trillion for the 12 months ending September 30, more than triple the $455 billion record set a year earlier, the Treasury Department said.

  • Canada's consumer prices were unchanged at 0.0% m/m in September, the same month-on-month rate as in August, CPI data from Statistics Canada showed. September CPI fell as forecast 0.9% y/y, a fourth consecutive year-on-year fall, following a 0.8% y/y decline in August and matching July's 0.9% y/y decrease that was the biggest since 1953. The September year-on-year CPI fall was mainly led by an 18.7% y/y drop in energy prices. Excluding energy, the CPI increased 1.3% y/y. The Bank of Canada core CPI rose 0.3% m/m in September after a 0.1% m/m increase in August. The BOC core CPI rate decelerated to 1.5% y/y, the slowest CPI growth rate since July 2008, from August's 1.6% y/y.

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Europe

  • The eurozone seasonally adjusted trade surplus narrowed more than expected to €1.0 billion ($1.5 billion) in August from a downwardly revised €6.0 billion in July, according to figures from Eurostat. Exports fell 5.8% m/m in August, the deepest fall in seven months, after a 4.7% m/m gain in July, while imports declined 1.3% m/m following July's 0.8% m/m increase. In non-seasonally adjusted terms, the trade balance unexpectedly posted a €4.0 billion deficit in August after a downwardly revised €12.3 billion surplus in July, compared with a €11.3 billion deficit in August 2008.

  • Switzerland's real retail sales unexpectedly declined 1.0% y/y in August after a 1.0% y/y increase in July, data from the Federal Statistical Office (FSO) showed. Nominal retail sales fell 1.2% y/y in August. However, the FSO noted that if the first eight months of the year 2009 are aggregated, real turnover per sales days rose by 0.4% and nominal turnover by 0.7% compared with the corresponding period a year earlier.

Asia-Pacific

  • Japan's budget requests rose 7.4% to a record ¥95.04 trillion ($1 trillion) next fiscal year from this year's initial budget of ¥88.5 trillion, a statement released by the Finance Ministry showed.

  • China, forecasting a 950 billion yuan ($139 billion) budget deficit this year, reported a 97 billion yuan shortfall in September, the second monthly deficit this year, according to figures from the Finance Ministry.