Expert Analysis of Today's Market

• The dollar traded mostly lower on Friday as US stocks rallied following the news that President-elect Barack Obama will nominate New York Federal Reserve Bank President Timothy F. Geithner as Treasury Secretary. The stock-market recovery pushed the yen lower against all the major currencies. The Canadian and Australian dollars rose today after successfully testing support of their October 27 lows yesterday. Sterling rose modestly despite increasing UK home foreclosures.


• The EUR/USD advanced despite signs of a deepening European recession. The euro-area purchasing manager indices slumped to fresh lows in November, led by a sharp fall in manufacturing. The gloomy data strengthens the case for further European Central Bank interest-rate cuts. The EUR/USD has been trading sideways since late-October. Falling stocks or commodities do not seem to cause serious EUR/USD declines as they used to. Strong support exists in the 1.24-area. If this is broken, another leg down will likely occur; if not, a test of the downtrend may be possible.

Financial and Economic News and Comments

US & Canada

• Canada’s consumer-price inflation rate was at 2.6% y/y in October, slowing more than expected, following September’s 3.4% y/y rate, as gasoline posted a smaller increase than in previous months, Statistics Canada reported. The October CPI declined a more-than-expected 1.0% m/m. The core CPI, which excludes gasoline and seven other volatile items, remained at 1.7% y/y in October, less than expected, and declined 0.2% m/m. Canada’s slowing inflation gives a green light to more aggressive Bank of Canada interest-rate cuts.

Europe

• Eurozone manufacturing and service industries contracted in November at the fastest rate in a decade, with the eurozone composite purchasing managers index falling more than expected to 39.7, the lowest since recordkeeping began in 1998, following October’s 43.6, according to flash PMI data by Markit Economics. The manufacturing PMI dropped to 36.2 in November from 41.1 in October, while the services PMI declined to 43.3 from 45.8. The figures show the eurozone manufacturing/services recession is worsening, likely pressuring the European Central Bank for further interest-rate cuts.

• Germany’s manufacturing PMI dropped more than expected in November to a record low of 36.7, following October’s 42.9, preliminary estimates by Markit Economics showed. The services PMI declined more than forecast to 46.2 in November, the lowest level since June 2003, from October’s 48.3.

• The German government will expand its 2009 net federal borrowing to €18.5 billion ($23.3 billion) from an earlier forecast of €10.5 billion, the first increase since Chancellor Angela Merkel came to office three years ago, as the government stretches the budget to pay for programs in a recessionary economy.


• UK home foreclosures rose 12% in Q3, totaling 11,300, compared with 10,100 in Q2, the Council of Mortgage Lenders reported. Applications to foreclose increased 9% to 38,511 and repossession orders climbed 24% to 29,516, the Ministry of Justice said.


• ECB Governing Council member Axel Weber said that with the “remarkable decline” in inflation pressures and the “rapidly” worsening eurozone economic outlook, the ECB has room to make further cuts to its main refinancing rate. ECB President Jean-Claude Trichet said the bank may cut interest rates again in December amid signs of a deepening European recession.

Asia-Pacific

• The Bank of Japan, as forecast, held its benchmark interest rate at 0.3% and said it will consider adding more funds into the financial system to revive the recessionary economy. BOJ Governor Masaaki Shirakawa instructed his staff to study new ways of making money available for lending, such as accepting corporate debt as collateral, the BOJ said in a statement. Shirakawa also indicated that he is reluctant to revive the BOJ’s 2001-2006 policy of keeping rates near zero as further rate cuts could freeze the money market by making it unprofitable for banks to lend to each other.

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