* The dollar and yen gained on Monday as risk aversion increased. The yen rose against all key currencies on carry-trade unwinding as US stocks fell on earnings concerns. The euro declined after Standard & Poor’s warned it could cut its ratings for Spain, and European Central Bank President Jean-Claude Trichet said the global economy will slow down significantly in 2009. Sterling was pressured by a forecast by the National Institute of Economic and Social Research that UK economic output fell 1.5% in Q4 2008, its fastest contraction since 1980. The Australian and Canadian dollars declined as commodity prices tumbled. The CRB index fell 4% on the slumping global economy.
* The USD/JPY fell for a fourth day mirroring the development in the US stock market. The pair seems having a false breakout from the well-established downtrend and may find some support from the old downtrend. If that support was broken, a new test of the 87-handle would be possible. Resistances exist in the 91-area and in the 94-area.
Financial and Economic News and Comments
US & Canada
* Canadian new-home prices declined for a second consecutive month in November, falling 0.3% m/m led by weaker demand in the western region, following October’s 0.4% m/m decline, Statistics Canada reported. New home prices increased 0.7% y/y, the slowest 12-month increase rate since August 1999. •
* Canadian companies face the worst business conditions with borrowing terms the tightest since at least 1999, according to a Bank of Canada business outlook survey.
* President George W. Bush, in his final press conference, said he was told the depression could be worse than the Great Depression, so he is pleased that credit markets are beginning to thaw. Credit spreads are beginning to shrink, lending is just beginning to pick up. The actions we have taken, I believe, have helped thaw the credit markets, which is the first step toward recovery.
* President-elect Barack Obama asked the Bush administration to notify Congress he seeks access to the remaining $350 billion under the Treasury Department’s $700 billion Troubled Asset Relief Program (TARP), the White House said.
* The overall economy is very weak, and I expect it will remain weak at least through the first half of 2009, Federal Reserve Bank of Atlanta President Dennis Lockhart said. However, he added that the Fed has the tools to revive the economy, and it is likely to keep interest rates low for an extended period of time.
* UK banks, insurers and financial-services companies may cut as many as 15,000 jobs in Q1 2009 amid a drop in business confidence, the Confederation of British Industry reported. Revenue and profitability in the financial-services industry dropped at a record pace in Q4 2008, the CBI said.
* Central bankers expect the global economy to recover in 2010, European Central Bank President Jean-Claude Trichet said.
* New Zealand’s business confidence dropped to a 40-year low in Q4 2008, with the headline figure for expectations dropping to -64 from Q3’s -19, according to the New Zealand Institute of Economic Research business opinion survey.
* People’s Bank of China Governor Zhou Xiaochuan said there are downside risks to the government’s 8% economic growth target for 2009. Meeting the target will be exceptionally arduous, said Liu Mingkang, the chairman of the China Banking Regulatory Commission.
FX Strategy Update