UK Industrial Production Drops by Most Since 2002

UK manufacturing slid sharply in November, extending the declines in the sector as the economy falls deeper into recession. The streak of 9 straight months of declines is the worst since 1980 and today's monthly drop was the worst since 2002. Industrial production overall was down 2.3%, also a worse than expected result.

UK Producer Output Prices Flat in December, Input Prices Down 2%

UK producer output prices were flat in December, a result that was stronger than expected following a drop of 0.7% in November. That put the annual rate at 4.7% from 5.1% in November. That annual fall was slower that we have seen the previous several months as prices tumbled from a peak of more than 10% back in June. Annual core prices remained stable at 5% implying a level of stickiness to prices, though with the economy reeling, factories are going to have to discount their goods in the next year.

The price at which UK factories buy materials and fuel fell 2% in December, which met expectations. This comes mainly as the price of fuel decreased. In annual terms input prices rose to 4.3%, but only a couple of months ago this indicator was as high as 30%.

GBP/USD - Pound Stalls In Rally vs Dollar

The Pound-Dollar's advance stalled today, following its almost 1000 pip rise from the start of the week to yesterday's high. The pair flirted above the 1.53 area prior to and after the US non-farm payroll release which we will cover later.

GER Industrial Production Down 3.1%

German industrial production fell by 3.1% in November, a larger than expected drop. Production in manufacturing was down 3.5%. On an annualized basis production was down 6.4%, also larger than the forecast and the previous month 3.8% drop. The industrial production data, along with factory orders and trade figures yesterday, are showing the German economy sinking deeper into recession as the 4th quarter went on.

GER Retail Sales Increase in November

On a positive note, German retail sales improved more than expected in November, climbing 0.7% on the month. Consumers were helped by lower gas prices and deep discounts for the holiday shopping season. But with the economic situation continuing to deteriorate and unemployment increasing in Germany, it remains to be seen if this positive result will carry over into future months.

EUR Retail Sales Increase as Well

Overall euro-zone retail sales also saw a better than expected result, rising 0.6% on the month. The data is one of the few pieces of news that is positive from the recession hit economy. It signals that household demand recovered slightly in the middle of the 4th quarter.

US Sheds 525 Jobs in December

The US economy shed 525K jobs in December, which came mainly in line with expectations. Though it's not a great release by any stretch of the imagination, especially with the unemployment rate jumping to 7.2%, and November's figure revised to a show a fall of 584K, the fact that it mainly met expectations and we didn't have any big surprises on the downside was overall a positive for the US Dollar. The unemployment rate is the worst in 16 years, and the economy lost 2.6 million jobs in 2008 the most since World War II ended in 1945. Nearly two-thirds of those losses came in the last 4 months as the credit crisis and implosion of the financial system worked its way through the financial sector and then into Main street.

EUR/USD - Euro Slides Following Jobs Report In Line with Expectations

The Euro-Dollar pair saw a significant reaction following the release, falling from 1.37 to 1.35, a change of 200 pips. It's a strange day when a loss of 500K jobs is a positive, but as the US jobs data met expectations, the Dollar saw some strength as a result, at least against the Euro. We end the week with the Euro-Dollar more than 450 pips lower than where we started, with key support around the 1.33 area.

US equities fell in the morning following the US data as the jump in the unemployment rate and another steep drop in jobs weighed on stocks. This caused a whippy session for the Dollar-Yen pair, which at first rallied on the fact that the report wasn't worse, reaching 91.66, but then fell 150 pips off that high to test the area around the 90 level. The fall continued the streak seen the past three sessions of gains for the Yen on risk aversion.

The Yen's gains were felt very sharply against the Euro as the Euro-yen pair plummeted more than 300 pips following the US jobs release. The pair has been on a downtrend, this week, and that downtrend accelerated to end the week.

CAN Employment Drops by 34.4K in December

In Canada, the economy shed 34.4K jobs in December, lower than in November, but it still caused the unemployment rate to rise to 6.6%. The result showed that most of the jobs lost were full time work as an increase in part time work offset what would have been a worse figure.

CAN Building Permits Plummet Again in November

The Canadian housing sector saw the annual rate of housing starts remain near its November level at 177K. However, building permits a leading indicator for future constructions saw a steep 11.8% drop, following a 15.7% drop in October, which means new housing starts can be expected to fall in 2009.

USD/CAD - Loonie Setting Up in Sideways Range

With oil prices falling as well, the US Dollar-Canadian Dollar pair rose from recent support near.1.18 to test 1.1950. The greenback pares some of its gains in NY trading, but we look set to end the week entering a period of sideways consolidation.

Next Week's Key US Releases

Some important US releases to keep an eye for next week include the trade balance on Tuesday, retail sales on Wednesday, producer prices on Thursday, and consumer prices on Friday.