- In NY trading Tuesday, the dollar rose against its rivals on European credit worries and stronger-thanexpected US economic data. US industrial production and producer prices climbed more than anticipated, increasing speculation the Federal Reserve will discuss its exit strategy and possible interest-rate increases. The S&P 500 declined 6.18 to 1,107.93. The euro fell to a two-and-a-half month low on concerns about the health of eurozone banks and the financial viability of the EMU's weaker members. Sterling fell versus the dollar but rose against other key currencies as UK inflation climbed more than expected. The Australian dollar fell as the Reserve Bank of Australia December meeting minutes were less hawkish than expected. The central bank said the previous rate hikes give the RBA some flexibility for the future. The Canadian dollar declined despite rising crude oil prices and stronger-than-expected Canadian leading economic indicators.
- The USD/JPY rose, supported by an improving US/Japanese yield differential. The pair spiked lower over the Thanksgivings holiday. After a few volatile weeks, the USD/JPY broke its downtrend. Japan's weak economy with deflation will likely keep Japanese rates low for the foreseeable future and return the yen as the preferred carry-trade funding currency again. There are support in the 88 area and resistance in the 90. We are buying the pair with stop at 87.30.
Financial and Economic News and Comments
US & Canada
- US producer prices rose a more-than-anticipated 1.8% m/m in November after a 0.3% m/m increase in October, according to PPI data from the Labor Department. The PPI climbed 2.4% y/y, the first year-over-year rise since November 2008, following October's 1.9% y/y decline. The November month-on-month PPI rise was mostly due to energy costs, which rose 6.9% m/m. Food prices grew 0.5% m/m. The core PPI, which excludes food and energy, increased 0.5% m/m in November after a 0.6% m/m decline in October. The core PPI advanced 1.2% y/y, following October's 0.7% y/y increase.
- US industrial production rose a more-than-expected 0.8% m/m in November, the fourth rise in five months, after a downwardly revised 0.0% m/m in October, according to IP data from the Federal Reserve with the November IP index standing at 99.4. November IP declined 5.1% y/y. Capacity utilization increased more than expected to 71.3% from October's downwardly revised 70.6. Manufacturing production grew 1.1% m/m in November, the largest gain in three months, after a revised 0.2% m/m decline in October. Motor vehicle/parts production rose 1.9% m/m in November, while manufacturing ex-autos increased 1.1% m/m. Manufacturing capacity utilization grew to 68.4% from October's 67.6%.
- New York manufacturing activity continued to expand in December, albeit at the slowest pace in five months, according to the latest Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. The NY Fed manufacturing index unexpectedly fell to 2.6 this month from 23.5 in November, remaining in positive territory for a fifth straight month. The new orders index dropped to 2.2 from 16.7 and the shipments index decreased to 6.3 from 13.0; however, remaining in positive territories. The inventory index fell to -18.4 in December from -17.1 in November, showing a faster pace of drawdown. The employment index fell to -5.3, a 3-month low, from 1.3. The prices paid index climbed to 19.7 in December from 10.5 in November, while the prices received index slid to -9.2 from -2.6.
- Homebuilder confidence unexpectedly declined in December. The National Association of Home Builders/Wells Fargo builder confidence index slipped to 16 this month, the lowest level since June, from 17 in November, the NAHB reported. A figure below 50 means most respondents view conditions as poor.
- Canada's leading economic indicators index rose a more-than-expected 1.3% m/m in November after a 0.7% m/m increase in October, according to LEI data from Statistics Canada. Nine of the index's 10 components climbed and one was unchanged, marking the broadest gain in more than two years.
- The ZEW eurozone economic expectations index declined to 48.0 in December from 51.8 in November, indicating eurozone investor confidence fell more than expected this month, according to data from the ZEW Centre for European Economic Research. The current economic situation index improved to -67.8 from -70.3. The ZEW German economic expectations index declined to 50.4 in December from 51.1 in November, indicating Germany's investor confidence was nearly unchanged and remained well above a historical average of 27.0. The current economic situation in Germany improved in December, with the current economic situation gauge increasing to -60.6 from November's -65.6.
- UK consumer prices grew a slightly more-than-expected 0.3% m/m in November after a 0.2% m/m increase in October, CPI data from the Office for National Statistics showed. The consumer-price inflation rate accelerated to 1.9% y/y, the fastest pace in six months, from October's 1.5% y/y. The core inflation rate rose to 1.9% in November, the fastest pace in a year. Retail prices were up 0.3% m/m in November after increasing at the same pace in October. The retail price inflation rate strengthened by the greatest degree since 1990, rising to 0.3% y/y from October's -0.8% y/y.
- UK house prices declined 2.2% y/y nsa in October, improving from a 4.1% y/y fall in September, according to data from the Department of Communities and Local Government. October house prices increased 0.5% m/m sa, a fifth consecutive month-on-month gain.
- Australia's seasonally adjusted dwelling starts grew a more-than-expected 9.4% q/q to 34,082 units in Q3 2009 after a revised 1.9% q/q decline in Q2, figures from the Australian Bureau of Statistics showed. Q3 dwelling starts fell 6.0% y/y.
FX Strategy Update