Dollar and yen weakens mildly as Asian stocks rally following rise 141 pts rise in DOW. DOW and Nikkei are now back above 8000 level. Aussie is lifted briefly by much stronger than expected rise in Dec retail sales but the momentum is mild so far. After all, markets are lacking clear direction. Focus will turn to a string of services data from US, UK and EZ today plus Eurozone retail sales and US ADP employment report which serves as a preview to Friday's Non Farm Payroll. Also, US Treasury is set to unveil some creative measures to finance the record $1.8T deficit today.
Retail sales in the Eurozone is anticipated to have plunged -0.3% mom in December, following a gain of 0.6% in November, despite deep discounts during holiday seasons. On annual basis, the gauge should have contracted -1.5%. Final reading for Eurozone’s services PMI should come in at 42.5 in January, slightly higher than 42.1 in the previous month while that for Germany probably fell modestly to 45.4 from 46.6. UK’s service PMI in January is expected to have improved to 40.4 from 40.2 a month ago. Recent PMI readings in European countries either showed some improvements or declined less severely than before, suggesting the pace of contraction may have eased. UK’s nationwide consumer confidence plummeted to 4-year low of 40 in January, worse than market expectation of 45 and revised 48 in December, as the majority of people surveyed described the current economic condition as bad and there were not enough jobs.
In the US, ADP employment survey is forecast to show a decline of private employment by -530K in January following -693K in December. Almost -400K positions were probably lost in the service sector while the auto, manufacturing and construction sectors contributed to the remaining loss of jobs. With the new methodology used since late last year, the ADP report is expected to give more accurate forecasts on BLS’ employment report. ISM non-manufacturing index probably dropped to 38 in January from 40.1 a month ago as many leading indicators indicated large decline in service-sector growth in January. Exports and imports order could have tested previous low while decline in commodity prices might have sent prices component lower. Layoffs might also have led the employment component to drop below 34.5 in December.
In Australia, retail sales in December rose 3.8% mom (consensus: 1%; November: 0.4%), the largest monthly increase since August 2000, as the government gave out cash grants to encourage spending as well as the RBA lowered interest rate aggressively. With the strong consumer spending, Australia may be able to avoid entering into recession in 4Q08.
Dollar Index's fall from 86.54 extends further to 84.76 today but so far it's still staying in range of 83.58 and 86.81. Current decline from 86.54 is viewed as part of the consolidation that started at 86.81 and such view will hold as long as 83.58 support holds. In other words, above 86.54 will suggest that whole rise from 77.69 has resumed for a retest of 88.46 high. However, Break of 83.58 will be an important indication that rise from 77.69 has completed. And in such case, dollar index could be starting another down leg of the consolidation from 88.46, targeting a retest of 77.69 before completion.