- The dollar traded mixed in light December 30 trading. The ISM Chicago PMI rose to its highest level since January 2006, fueling optimism of US manufacturing expansion. The S&P 500 edged 0.22 points higher to 1,126.42. The yen declined, pressured by Japan's debt issuing and fear of JAL bankruptcy. The euro was pressured by a third consecutive decline in private sector lending and weakness in EMU M3. Sterling fell overnight on concerns about the UK debt outlook but reversed losses after S&P downgraded Madrid's debt rating which shifted focus to European fiscal troubles and rallied the pound particularly against the euro. The Australian and Canadian dollars fell on weakness in gold and stocks.
- The dollar index rose modestly for a second day. The December dollar rally has been supported by short covering and rising US interest rates. We believe the dollar rally will continue; however, the dollar index, following sharp gains, may require further consolidation before new advances. Furthermore, US interest rates have risen significantly and most pundits see continuing rising US interest rates. However, our contrarian view is that there may be a temporary easing in interest rates, which may pressure the dollar in the short term. There are support in the 77 area and resistance in the 78. The index will likely consolidate gains in these areas before moving higher.
Financial and Economic News and Comments
US & Canada
- The Chicago business barometer unexpectedly rose to 60.0 in December from 56.1 in November, indicating US business activity expanded beyond the 50 expansionary level for a third consecutive month and reached the highest level since January 2006, according to the Chicago Report by Kingsbury International, Ltd. and the Institute for Supply Management - Chicago, Inc. The production index jumped to 65.8 in December from 57.6 in November, indicating production grew above the 50 expansionary mark for the fourth time in five months. New orders also expanded for the fourth time in five months and rose to the highest level in more than two years, with the new orders index advancing to 63.5 from 62.8. Employment expanded for the first time since November 2007, with the employment index rising to 51.2 this month from a contractionary 41.9 in November. Prices paid strengthened in December, with the prices paid index increasing to 54.9 from 52.6.
- Eurozone M3 unexpectedly declined 0.2% y/y in November after an upwardly revised 0.6% y/y increase in October, according to a report from the European Central Bank. The decline was the largest since the euro's introduction in 1999 and below the 4.5% growth rate that the ECB considers as consistent with stable prices.
- The KOF Swiss leading economic index increased to a lower-than-expected 1.68 in December from 1.62 in November, pointing to a slowing economic recovery in Switzerland in 2010, according to LEI data from the Konjunkturforschungsstelle Swiss Institute for Business Cycle Research. The institute said the upward dynamics will significantly lose momentum during the next few months.
- The Nomura/JMMA Japanese PMI rose to 53.8 in December, the first rise in 3 months, from 52.3 in November, indicating Japan's manufacturing activity grew above the 50 expansionary level for a sixth consecutive month, according to PMI data released by Markit Economics.
- South Korean manufacturer confidence climbed for the first time in three months on upgraded economic growth forecasts for South Korea, with the manufacturing expectations index for January advancing to 90 from 85 the prior month, according to a survey released by the Bank of Korea. The non-manufacturing expectations index held steady at 84 for a third consecutive month. Economic growth will be around 5.0% in 2010 after 0.2% in 2009, the Ministry of Strategy and Finance said this month, raising its forecasts.
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