Expert Analysis of Today's Market

• The dollar traded mixed in New York on Thursday. US stocks rose after the US Q3 GDP contracted less than forecast. Gold, oil and most other commodity prices fell. The euro reversed overnight gains pressured by the lowest European sentiment since December 1993. Sterling rose modestly despite a record drop in UK house prices. The yen fell as higher US equity prices helped boost risk appetite. The Bank of Japan is expected to lower its key interest rate to 0.25% from 0.50% in an attempt to prop up the Japanese flagging economy. The Australian and Canadian dollars rose for the third consecutive day on improved risk sentiment.


• The USD/CHF gained today but is lower for the week. The pair is testing resistance from the long-term downtrend. If this resistance is broken, the pair will rally. The pair is overbought; thus, further consolidation is possible before a new attempt to penetrate the resistance. If the short-term uptrend that started in July is broken, the test of the downtrend may be postponed and the downtrend continues a bit longer.

Financial and Economic News and Comments

US & Canada

• The US Q3 GDP contracted at a 0.3% q/q annualized rate as consumer spending dropped sharply, the worst economic performance since the 2001 recession, after growing at a 2.8% q/q annualized rate in Q2, advance data from the Commerce Department showed. Consumer spending fell 3.1% q/q, the first decline in 17 years and the worst since 1980. The Q3 GDP decrease primarily reflected negative contributions from personal consumption expenditures, residential fixed investment, and equipment and software that were largely offset by positive contributions from federal government spending, exports, private inventory investment, nonresidential structures, and state and local government spending. Imports, which are a subtraction in the GDP calculation, fell. Overall, the Q3 GDP contraction adds to the evidence the US economy is in a recession. The GDP is likely to decline as much as 4.0% q/q in Q4, pointing to a prolonged US recession.

• US initial jobless claims held at 479,000 in the week ending October 25, the Labor Department said. Continuing claims fell 12,000 to 3.715 million in the week ending October 18.

Europe

• The eurozone business climate indicator declined to -1.34 in October, below expectations, following September’s downwardly revised -0.82, data from the EU Commission showed. The economic sentiment indicator dropped to a 15-year low of 80.4 in October, following September’s downwardly revised 87.5. The consumer confidence indicator fell more than expected to -24, down from September’s -19. The industrial confidence indicator declined more than forecast to -18, following September’s -12. The services confidence indicator index dropped more than expected to -6, following September’s 0 reading. Overall, the figures point to further declines in eurozone economic activity.

• The Bloomberg eurozone retail purchasing managers’ index fell to 44.3 in October from 46.2 in September, indicating a decline in eurozone retail sales for the fifth straight month and one of the steepest drops since the record began in 2003, Bloomberg reported.


• Germany’s unadjusted unemployment fell to 2.99 million in October, the first time since November 1992 below 3 million, down from a post-World War II peak of 5.3 million in February 2005, the Federal Labor Agency said. Adjusted unemployment dropped 26,000, more than expected, to 3.15 million in October, after falling 29,000 in September. The adjusted unemployment rate fell to 7.5%, a 16-year low. Despite October positive data, the resiliency of the German labor market will possibly not be maintained and unemployment will likely rise by the beginning of 2009.


• UK house prices dropped 14.6% y/y to £158,872 ($261,000) in October, the biggest decline since the survey began in 1991, after falling 12.4% y/y in September, Nationwide Building Society said. House prices declined 1.4% m/m following September’s 1.7% m/m fall. The decline indicates continued deterioration in the UK housing market.

Asia-Pacific

• The Australian leading index increased for the sixth consecutive month, gaining 0.4% in August to stand at 191.8, following an upwardly revised 0.4% increase in July, the Conference Board reported. Money supply, rural goods exports and stock prices contributed positively to the August gain. Nevertheless, the strengths among the leading indicators were only slightly more widespread than the weaknesses over the last six months. The coincident index, a measure of current economic activity, increased 0.1% in August to stand at 145.7, boosted by continued gains in employment, following July’s revised 0.2% gain. The strengths among the coincident indicators remained widespread in recent months. Overall, the indexes still suggest Australian economic growth will be slow in the near term.

FX Strategy Update