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Video for November 25th, 2008 (4 min): Euro and Pound Rally vs Dollar as Fed Unveils New Plan to Unclog Credit Markets

AUS Leading Index Down 0.3%, NZ Inflation Expectations Fall to 2.7%

In Australia, the Conference Board's index of leading indicators showed a 0.3% decline for the September period, the first decline in the index in seven months. It was up 0.5% in August. Negative contributors including weaker stock prices, building approvals, a lower yield spread and a decline in rural goods exports. In New Zealand meanwhile, a survey of business expectations for the 4^th quarter showed the 2-year horizon for inflation fall to 2.7% from 3.0% in the 3^rd quarter.

JPN Firms Paying 1.4% Lower for Services Compared to a Year Ago

The prices that Japanese companies pay for services fell 1.4% in October compared to a year ago. The decline was driven by falls in transportation costs, like ocean and airline freight. It's the first time that the corporate service price index has been negative in more than two years and shows the deflationary situation in the global economies as a result of falling commodity prices.

AUD/JPY - Aussie Pares Earlier Losses

 

The Aussie-Yen pair hit a high near 63.70 to end yesterday's global session following a strong rally on the back of increased risk sentiment. However, overnight, the Aussie gave up about half of yesterday's gains as the threat of a global slowdown still looms large and will pressure commodity currencies.

GER Final GDP Release Confirms Recession, Cons. Confidence Climbs

In Germany, the final version of GDP confirmed that the economy shrank in the 4^th quarter, by a slightly larger degree than originally reported. It puts the German economy into recession as it experienced a fall in exports. Consumer confidence managed to increase to 2.2, as sharply falling energy prices helped income expectations. 

EUR/USD - Euro Has Second Leg To Rally

 

The Euro-Dollar pair hit a low near 1.28 following the release of its data and prior to the NY open. It was also the end of a correction of yesterday's sharp rally. News form the US, including the Fed's new determination to unclog credit markets using up to $800 billion, helped spur a second-day of Euro gains. The pair reached 1.3080 following the NY open as risk sentiment was positive to start equity trading. Today's rally stalled there and was consolidating in a 60-70 pip range through out the early afternoon.

UK Mortgage Lending Remains Low, Business Investment Falls Less Than Expected

In the UK, there were 21.6K new mortgage approvals in October, lower than expected and down compared to September. In a second release business investment for the 3^rd quarter was down 0.2%. Forecasts had investment dropping by 1.8%, so the data was better than expected.

GBP/USD - Pound Surges on Risk Appetite Following NY Open

 

The Pound rallied strongly against the Dollar today after retracing to the 1.4980 level. NY trading saw the Pound surge 400 pips, as the Fed's plan boosted demand for higher-yielding assets such as the Pound, though mainly against the Dollar. The Pound had a smaller rally against the Yen.

US 3rd Quarter GDP Revised Down to -0.5%

Turning to the US, GDP growth in the 3rd quarter was revised down to show a 0.5% drop in its second release, compared to the 0.3% decline originally reported. Personal consumption, a measure of consumer spending showed a bigger than expected downward revision, falling by 3.7%. That bodes ill for 4th quarter economic activity as consumer cut back spending in the face of a deteriorating economic outlook, growing unemployment, and weak stocks and housing prices.

US S&P 20-City House Price Index Down Record 17.4%

Housing prices continued to fall in September, with the S&P/Case-Shiller house price index falling to new record lows, with annual declines of 18.6% for the 10-city index, and 17.4% for the 20-city index.

US Gov't Housing Price Index Down 1.3% in September

Housing prices, as measured by sales and refinancing data obtained from Fannie Mae and Freddie Mac, were down 1.3% for the month of September, and down an annual rate of 7%. The decline in the monthly rate was larger than expected by economists and shows that the housing market has yet to stabilize in the face of worsening economic conditions.

US Consumer Confidence Recovs in November, Richmond Fed Index Falls to -38

The Conference Board measure of consumer confidence rose to 44.9 in November, from its all-time low of 38.0 in October. The expectations index increased to 46.7, as the present situation index fell slightly. The Richmond Fed index showed manufacturing activity deteriorating sharply, falling to -38. All broad indicators of activity - shipments, new orders, and employment - contracted.

USD/JPY - Yen Gains on Dollar as Global Recession Worries Limit Risk Appetite in the Pair

 

The Dollar-Yen pair did not join in on the risk appetite, or perhaps the Dollar weakness seen against the Pound and Euro were more the Dollar being pressured and not risk sentiment improving, as that tends to push the Dollar higher against the Yen. In any case, the pair fell from 97.40 to start the session to the 95 level by 2:30 PM EST. Worries over global recession hurt carry trade yen-crosses.

CAN Retail Sales Increase 1.1%

In our last look at a fundamental release, Canadian retail sales surprised on the  upside, increasing 1.1% in September. It's the strongest rise in sales in 8 months and sales by new car dealers were up for the first time since January.

USD/CAD - Loonie Tests 1.2125 as Retail Sales Surprise on Upside

 

The Loonie jumped today as retail sales came in much higher than expected and forex markets continued the risk appetite sentiment in early NY trading that we saw yesterday. The Loonie broached the 1.2125 area after a 300 pip rally against the Greenback which was almost 850 pips off its high seen on Friday. There was a pull back to today's fall though, and the pair was trading near 1.2320 around 3 PM EST.

Overnight and Tomorrow's Releases

In upcoming releases, overnight brings Germany's import and consumer price indexes. The UK releases its econd release of 3^rd quarter GDP and an index of services. Tomorrow, the US starts with Durable Goods orders and jobless claims.

Continuing in the US, there will also be releases on personal income and spending, new home sales, the Chicago PMI and the final version of UMich consumer sentiment.