- The dollar rose on Tuesday as risk aversion increased. Global stocks and commodities fell as huge losses in Dubai, credit downgrades in Greece and warnings about the UK and US financial positions fueled market jitters. The S&P 500 declined 11.32 to 1,091.93. The yen gained against all major currencies. A new Japanese $81 billion stimulus package did not have much impact on the yen; at 1.5% of GDP the stimulus is too small. The euro fell below the 1.47 support. German industrial output unexpectedly declined for the first time in three months. The Canadian dollar fell to important support after the Bank of Canada kept interest rates unchanged at 0.25%, as expected, and reiterated its concerns over the loonie's strength. The Australian dollar dropped for a fourth day, testing important support in the 90 area.
- The GBP/USD broke the 1.64-area support and fell to 1.6283 on disappointing UK economic data and concerns over the UK government's pre-budget report. The UK Treasury was widely expected to revise down its growth forecast, while there was also speculation that a levy would be introduced on bank bonus payments. There are resistance in the 1.65-1.66 area and important support around the 1.62 handle. If this support is broken, the GBP/USD will likely test the 1.60 area.
Financial and Economic News and Comments
US & Canada
- Canada's seasonally adjusted housing starts increased 0.7% m/m in November to an annualized 158,500 rate, their second monthly rise and the highest level this year, from an upwardly revised 157,400 pace in October, Canada Mortgage and Housing Corporation reported. November housing starts declined 8.3% y/y.
- Purchasing managers at US factories expect sales will rise 5.7% in 2010, outpacing a 1.3% increase projected by services, a survey by the Institute for Supply Management showed.
- Germany's seasonally adjusted industrial production unexpectedly slipped 1.8% m/m in October, the first decline in three months, after an upwardly revised 3.1% m/m advance in September, according to IP data from the Federal Ministry of Economics and Technology. The decline was led by weak production in the energy and construction sectors. October IP fell 12.4% y/y nsa wda, following a revised 12.6% y/y September fall.
- UK manufacturing production was unchanged m/m in October after a downwardly revised 1.5% m/m gain in September, the Office for National Statistics said. October manufacturing production fell 7.8% y/y, moderating from a revised 9.8% y/y September decrease. Overall industrial production was also unchanged m/m in October after a downwardly revised 1.3% m/m increase in September. October IP fell 8.4% y/y, easing from a revised 10.8% y/y September drop. The lower-than-expected October figures signal the UK economy is struggling to emerge from the recession.
- UK retail sales gained for a third consecutive month in November, increasing 1.8% y/y on a like-for-like basis; however, slowing from a 3.8% y/y October gain, the British Retail Consortium reported. On a total basis, retail sales grew 4.1% y/y in November after a 5.9% y/y advance the prior month.
- UK house prices climbed a more-than-expected 1.4% m/m in November, a fifth consecutive month-on-month gain, to an average of £167,664 ($272,877), after a downwardly revised 1.1% m/m increase in October, according to a Halifax report. November house prices rose 1.8% y/y, the first year-on-year gain since February 2008. House prices declined 1.6% y/y in the three months through November, improving for a seventh consecutive month and easing the pace of decline following a 4.7% y/y slide in the three months through October.
- Japan's current-account surplus widened 42.7% y/y to ¥1.4 trillion (15.7 billion) in October, according to figures released by the Ministry of Finance. Exports declined 24.6% y/y in October, the slowest pace in a year.
- Japan's merchant confidence declined further in November. The Japanese current conditions index fell more than expected to 33.9 in November from 40.9 in October, according to the Cabinet Office's latest economy watchers survey. The future conditions index decreased to 34.5 from October's 42.8.
- The Japanese leading economic indicators index, a measure of future economic activity, rose more than expected to 89.7 in October, an eight consecutive monthly gain, from 87.5 in September, according to preliminary October LEI data released by the Cabinet Office. The coincident index, measuring present economic activity, rose to 94.3, a seventh straight monthly rise, from September's 93.2.
- The Japanese government, led by Prime Minister Yukio Hatoyama, announced a ¥7.2 trillion ($81 billion) economic stimulus package. The Cabinet Office said the government's first stimulus plan includes ¥3.5 trillion to help regions, ¥800 billion on environmental initiatives and ¥600 billion for employment.
- Australia's current account deficit widened less than expected to A$16.18 billion ($14.8 billion) in Q3 2009 from a revised A$13.1 billion in Q2, according to figures from the Australian Bureau of Statistics.
- The NAB Australian sentiment index climbed to 19 in November from 16 in October, indicating Australia's business confidence rose to the highest level since May 2002, National Australia Bank Ltd. reported. The business conditions index slipped to 10 from October's 12, indicating conditions on hiring, sales and profits declined slightly in November.
FX Strategy Update