Expert Analysis of Today's Market

• The dollar traded mostly higher on Thursday, rising against the European currencies as weak US economic data pushed US stocks lower increasing safe-haven flows. US initial jobless claims approached the highest level since 1982 and the Philadelphia Fed manufacturing index fell to the lowest level since 1990, further indications the US economy is in a deepening recession. US stocks plunged for a second day, sending the S&P 500 index below its lowest close in 11 years, after failing to hold critical support and lawmakers postponed voting on a plan to rescue the auto industry. The Canadian and Australian dollars suffered on increased risk aversion and falling commodity prices. Crude oil fell to a 3-year low below $50 a barrel. The Swiss franc dropped to the lowest level since July 2007 after the Swiss National Bank unexpectedly cut its target lending rate to 1.00%.


• The USD/JPY fell on dropping US stocks and increasing risk aversion. US treasury yields declined to a record lows, with 2-year notes dropping below 1.0% for the first time. The USD/JPY is in a clearly defined downtrend and likely to test the important 92-area support. There is resistance in the 96-area. For a return of risk appetite, the downtrend in the stock market needs to be broken. This would reduce carry-trade unwinding and break the negative trend in the USD/JPY.

Financial and Economic News and Comments

US & Canada

• US initial jobless claims jumped to a higher-than-expected 542,000, approaching the highest level since 1982, in the week ending November 15, Labor Department data showed. Continuing jobless claims rose to 4.012 million, the most since December 1982, in the week ending November 8.

• Manufacturing in the Philadelphia region contracted in November, with the Philadelphia Fed general business activity index falling to -39.3, weaker than expected and the lowest level since October 1990, following October’s -37.5, the Federal Reserve Bank of Philadelphia said. The index averaged 5.1 in 2007. The new orders index dropped to -31.4 in November, the lowest reading since August 1980. The shipments index was unchanged at 18.8, the lowest level since February 2001. The prices paid index plummeted at the fastest rate on record to -30.7, following October’s 7.2. The prices received index dropped to -15.5 from 5.3. The employment index fell to -25.2, the lowest level since November 1990, from -18.

• The Conference Board US leading economic indicators index dropped in October for the third time in four months, declining 0.8% m/m, more than expected, after increasing 0.1% m/m in September, the Conference Board reported. The LEI contraction signals a deepening US recession.


• Canadian wholesale sales unexpectedly rose 1.5% m/m to C$46.3 billion ($36.8 billion) in September as sales of vehicles and automotive parts recovered, following August’s 1.5% m/m decline, Statistics Canada reported.

Europe

• Germany’s producer prices rose a more-than-expected 7.8% y/y in October, following an 8.3% y/y gain in September, data from the Federal Statistics Office showed. Producer prices were unchanged m/m in October, after increasing 0.3% m/m in September.


• UK retail sales declined a less-than-expected 0.1% m/m in October, following September’s downwardly revised 0.5% m/m drop in September, according to data from the Office for National Statistics. Retail sales rose 1.9% y/y.


• The Swiss National Bank unexpectedly slashed its target for the 3-month Libor 100 basis points to 1.00%, the largest single rate cut the SNB has made since it began targeting the Libor in 2000, and promised a “generous and flexible” supply of Swiss francs.

Asia-Pacific

• Japan unexpectedly posted a ¥63.9 billion trade deficit in October, following September’s downwardly revised ¥88.5 billion trade surplus, the Ministry of Finance reported. Imports rose 7.4% y/y, while exports fell 7.7% y/y. The seasonally adjusted trade balance showed a ¥175.6 billion deficit in October.

FX Strategy Update