- The dollar rose on Tuesday as risk sentiment dropped. Investors worried about the strength of the global economic recovery. The World Bank said the global recovery is fragile and government should not reduce fiscal stimulus yet. US industrial production rose less than expected and the month-on-month core PPI unexpectedly declined. The S&P 500 rose 1.02 to 1,110.32. The yen fell. Japan's tertiary industry activity index unexpectedly decreased. The euro declined after European Central Bank President Jean-Claude Trichet stated that a strong dollar is in the world's best interest and Federal Reserve Bank Chairman Ben Bernanke's comment yesterday was very important. The EMU trade balance improved as exports rose. Sterling fell modestly; the fall was limited by stronger-than-expected UK inflation. The Canadian and Australian dollars fell but pared losses as commodity prices reversed earlier losses. Reserve Bank of Australia minutes increased speculation the RBA will keep interest rates unchanged at its next meeting in December.
- The USD/CHF rose on increasing risk aversion and an unexpected decline in Swiss retail sales. The pair has developed a potential double bottom in the 1.00 area. The USD/CHF reached the resistance from the longterm downtrend today; nevertheless, being unable to penetrate it. If this downtrend is broken, the negative technical outlook will be reversed. On the other hand, a penetration of the 1.00-area support will likely lead to an accelerating decline.
Financial and Economic News and Comments
US & Canada
- US producer prices increased a less-than-expected 0.3% m/m in October after a 0.6% m/m decline in September, PPI data from the Labor Department showed, giving the Federal Reserve another reason to keep interest rates near a record low for an extended period. The PPI fell 1.9% y/y, following September's 4.8% y/y drop. The October month-on-month PPI increase was attributable to food and energy, which rose 1.6% m/m each. The core PPI, which excludes food and energy, unexpectedly fell 0.6% m/m in October, the largest fall since July 2006, after a 0.1% m/m decline in September. The core PPI advanced 0.7% y/y, the smallest increase since 2004, following September's 1.8% y/y rise.
- US industrial production increased a smaller-than-expected 0.1% m/m in October, a fourth consecutive monthly gain, after a downwardly revised 0.6% m/m advance in September, according to IP data from the Federal Reserve with the October IP index standing at 98.6. Capacity utilization grew to 70.7% after September's 70.5%. Manufacturing production declined 0.1% m/m in October, reflecting a reduction in auto making, after a downwardly revised 0.8% m/m increase in September. Motor vehicle and parts production decreased 1.7% m/m, following September's 8.1% m/m gain. Excluding automobiles, manufacturing output slipped 0.1% m/m in October. Manufacturing capacity utilization was unchanged at 67.6%.
- Net foreign purchases of long-term securities were $40.7 billion in September after an upwardly revised $34.2 billion in August, while monthly net TIC flows were $133.5 billion following an upwardly revised $25.3 billion the prior month, the Treasury said.
- US homebuilder confidence was lower than expected in November, according to the National Association of Home Builders/Wells Fargo housing market index, which remained unchanged from October's downwardly revised 17. A number below 50 indicates most respondents view conditions as poor. The measure of current single-family home sales was unchanged at 17 in November for a second month. The gauge of buyer traffic held at 13. A measure of sales expectations for the next six months increased to 28 from 26.
- The eurozone seasonally adjusted trade surplus unexpectedly widened to €6.8 billion ($10.1 billion) in September from an upwardly revised €2.2 billion in August, according to figures from Eurostat. Exports rose 5.5% m/m in September after a revised 4.1% m/m decrease in August, while imports increased 1.1% m/m following a revised 1.0% m/m August decline. In non-seasonally adjusted terms, the trade balance posted a €3.7 billion surplus in September after a revised €2.3 billion deficit in August, compared with a €6.0 billion deficit in September 2008.
- UK consumer prices increased a slightly more-than-estimated 0.2% m/m in October after remaining unchanged m/m in September, the Office for National Statistics said. The inflation rate accelerated for the first time in eight months, to 1.5% y/y in October from 1.1% y/y the prior month. The core inflation rate rose to 1.8% y/y, as forecast, from September's 1.7% y/y. Retail prices increased 0.3% m/m in October after a 0.4% m/m advance in September. The retail price inflation rate strengthened by the greatest degree since August 1990, increasing to -0.8% y/y from September's -1.4% y/y.
- Switzerland's real retail sales unexpectedly fell for a second month in September, falling 1.6% y/y following a 1.0% y/y August decline, data from the Federal Statistical Office showed. Nominal retail sales in September decreased 2.0% y/y.
- The tertiary industry activity index unexpectedly declined 0.5% m/m to 96.4 in September after a 0.3% m/m increase in August, indicating the domestic service sector in Japan fell for the first time in four months, data from the Ministry of Economy, Trade and Industry showed. The decline was led by the following industries: 1) information and communications; 2) finance and insurance; 3) wholesale and retail trade; and 4) medical, health care and welfare.
FX Strategy Update