FOREX TRADING

Stocks Rise, Yields Up

With no more than eight trading sessions remaining for 2009 the New Year really isn’t very far away at all. And with an increasing number of onlookers observing that yields will rise next year, investors are slowly but surely starting to bake that view into the cake. The reversal in 10-year U.S. yields from a Dubai-inspired 3.16% to a pre-FOMC 3.61% took place in under three weeks and confirms the worries bubbling away under the surface many fixed income investors seem to be harboring.

While the Fed managed to portray within its statement this week that the economy faces a remarkably inflation friendly environment, the word is out that 2010 will be a year in which corporate and government funding costs will very likely increase. The latest to admit to turning around the tanker is manager at the world’s biggest bond fund, Pimco’s Bill Gross. Today it was reported that he has lightened the boatload of government debt and futures he’s carrying predicting lower yields and flatter curves instead trading it in for cash. He now hoards the largest proportion of cash since before the Lehman’s crisis.

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Wall Street Pain – Dollar Gain

Wall Street trade has pushed S&P futures to the lows of the overnight session at 1090 (-1.5%), gold has dropped to test bids at 1100 (-2.5%), at the same time as oil hits the low of the day at 71.00 (-1.5%). The dollar impact has been to send euro through the lows of the session, while the other major pairs are still inside their daily ranges.

Forex traders will be eying the major pair’s Daily charts, because the 100 and 200 day Simple Moving Averages are in play; these are areas of major importance. In previous trade the dollar would have already taken out the resistance areas that it is currently sitting at, especially with the global markets going hard into risk aversion mode.

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European Market Update

UK jobless claims falls for the first time since Feb 2008 aids risk appetite

ECONOMIC DATA

(SW) Swedish Riksbank left its Repo Rate at 0.25%; as expected

(RU) Russia Nov Producer Prices M/M: -0.5% v -0.2%e; Y/Y: 6.5% v 5.9%e

(FR) French Dec PMI Manufacturing: 54.4 v 54.7e; PMI Services: 59.3 v 60.0e

(SP) Spanish Q3 Labor Costs: 3.3% v 3.9% prior

(HU) Hungarian Oct Av Gross Wages Y/Y: -1.6% v 0.7%e

(TU) Turkish Nov Consumer Confidence: 78.4 v 80.5 prior

(GE) German Dec Adv PMI Manufacturing: 53.1 v 52.6e; PMI Services: 53.1 v 51.9e

(SW) Sweden Nov Avg House Prices (SEK): 1.85M v 1.78M prior

(IT) Italian Nov Final CPI (NIC inc tobacco) M/M: 0.0% v 0.1%e; Y/Y: 0.7% v 0.7%e
(IT) Italian CPI- EU Harmonized M/M: 0.1% v 0.1%e; Y/Y: 0.8% v 0.8%e

(EU) Euro-zone Dec Adv PMI Manufacturing: 51.6 v 51.5e; PMI Services: 53.7 v 53.2e; PMI Composite: 54.2 v 54.0e

(UK) Nov Jobless Claims Change:-6.3KK v 12.5Ke; Claimant Count Rate: 5.0% v 5.1%e
(UK) Oct Avg Earnings inc Bonus: 1.5% v 1.2%e; Ex Bonus: 1.7% v 1.8%e
(UK) Oct ILO Unemployment Rate: 7.9% v 7.9%e
(UK) Manufacturing Unit Wage Cost: 3.0% v 3.5% prior

(EU) Euro-zone Nov CPI M/M: 0.1% v 0.2%e; Y/Y: 0.5% v 0.6%e

(IT) Italy Oct Trade Balance: -€710M€75.8Me; Trade Balance EU: -€825M v -€332.5Me
(IT) Italy Oct Current Account: -€3.3B v -€4.2B prior

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European Market Update

Concerns continue to simmer on the edges of the European financial front; German ZEW survey shows the fragility of the economic recovery; Dollar benefits as equity markets show unease

ECONOMIC DATA

(SZ) Swiss SECO Economic Forecasts: Raises 2009 and 2010 GDP slightly upwards

(EU) EU 25 new car registrations: 26.9% v 11.6% prior

(FI) Finland Oct Final Retail Sales: -1.8% v -1.2% prior

(FR) French Nov CPI M/M; 0.1% v 0.3%e; Y/Y: 0.4% v 0.5%e
(FR) French CPI- EU Harmonized M/M: 0.2% v 0.2%e; Y/Y: 0.5% v 0.5%e; CPI Ex Tobacco Index: 118.31 v 118.51e

(HU) Hungarian Oct Final Industrial Output M/M: 1.8% v 1.8% prior, Y/Y: -10.8% v -10.8% prior

(CZ) Czech Nov PPI (Industrial) M/M: 0.4% v 0.0%e; Y/Y: -2.4% v -2.8%e
(CZ) Czech Oct Export Price Index Y/Y: -3.2% v -4.3% prior; Import Price Index Y/Y: -8.1% v -9.3% prior

(TU) Turkish Sept Unemployment Rate: 13.4% v 14.0%e

(SP) Spanish Nov CPI M/M: 0.5% v 0.6%e; Y/Y: 0.3% v 0.4%e
(SP) Spanish Nov CPI – Core M/M: 0.4% v 0.3%e; Y/Y: 0.2% v 0.1%e
(SP) Spanish Nov CPI- EU Harmonized M/M: 0.5% v 0.6%e; Y/Y: 0.4% v 0.4%e

(SZ) Swiss Q3 Industrial Production Q/Q: 3.4% v -0.1%e; Y/Y: -6.7% v -9.6%e

(NV) Netherlands Oct Trade Balance: €3.8B v €3.9B prior
(NV) Netherlands Oct Retail Sales Y/Y: -4.3% v -4.0%e

(DE) Danish Nov Wholesale prices M/M: 0.6% v -0.3% prior; Y/Y: -1.9% v -5.3% prior

(IT) Italian Q3 Labor Costs Q/Q: 0.5% v 1.0% prior, Y/Y: 1.8% v 4.5% prior

(NO) Norway Nov Trade balance (NOK) 29.8B v 27.4B prior

(RU) Russia Nov Industrial Production M/M: 2.0% v -1.1%e; Y/Y:1.5% v -0.6%e; First positive YoY reading since Oct 2008

(UK) Nov CPI M/M: 0.3% v 0.2%e; Y/Y: 1.9% v 1.8%e; Core CPI Y/Y: 1.9% v 1.9%e
(UK) RPI M/M: 0.3% v 0.2%e; Y/Y: 0.3% v 0.3%e; Ex Mortgages: 2.7% 2.6%e; RPI Index: 216.6 v 216.6e
(UK) UK Oct DCLG House prices Y/Y: -2.2% v -4.1% prior; best reading since Oct 2008

(SA) South Africa CPI (all items) M/M: 0.0% v 0.1%e; Y/Y: 5.8% v 5.9%e

(GE) German ZEW Survey – Econ sentiment: 50.4 v 50.0e; Current situation: -60.6 v -60.1e

(EU) Euro-zone ZEW – Econ sentiment: 48.0 v 50.0e
(EU) Euro-zone Q3 Labor Costs Y/Y: 3.2% v 3.5%e

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Greenback Slides Ahead of FOMC

The euro bounced off its lows against the dollar around the 1.46-figure, to recover near the 1.4650-mark while the sterling rebounded above the 1.63-level at the start of the week. Economic data will remain in focus in the coming week with key reports due out from the US, Eurozone, UK, Canada and Japan. The major global equity bourses were marginally higher on the session, while spot gold edged up slightly from its one-month lows near $1,125 per ounce and crude oil slipped beneath the $70-per barrel mark.

The FOMC kicks off its two-day monetary policy meeting tomorrow with the decision slated for announcement on Wednesday afternoon. While no change is expected in the Fed’s benchmark lending rate, seen standing pat at 0-0.25%, markets will closely scrutinize the accompanying statement for additional clues as to when the Fed may begin reining in its quantitative easing.

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U.S.: Consumer Spending Bolsters U.S. Recovery Hopes

• Retail sales were much stronger than expected in November, rising by 1.3% M/M, following a 1.1% M/M gain in the prior month.
• Excluding autos, sales were up an equally strong 1.2% M/M, while core retail sale rose by a more modest 0.6% M/M.
• This was a surprisingly strong report, and suggests that U.S. consumers are slowly regaining their spending mojo.

U.S. consumer spending surged by a strong 1.3% M/M in November, following the 1.1% M/M (previously reported as +1.4% M/M) gain the month before. The advance in sales was well ahead of the market consensus for a more modest 0.6% M/M gain and was the fifth monthly gain in this index in seven months.

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U.S.: NonFarm Payrolls Surprise to Upside – Let the Sunshin in

• The U.S. economy lost 11K jobs in November, the smallest monthly decline over the course of the recession
• The unemployment rate declined to 10.0% from 10.2% in October
• Overall, we continue to believe that persistent job creation will occur in Q1-2010

U.S. nonfarm payrolls decline by 11K in November, which was an extremely strong print relative to market expectations going into the release. The Street was looking for a print of -125K, while our own in-house forecast was looking for a more modest decline of 100K. The prior month’s report was revised much higher to -111K from the originally reported -190K. This month’s report represents the smallest monthly jobs loss since the beginning of the recession. As a consequence, the unemployment rate declined to 10.0% from 10.2% the prior month.

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Bernanke Testimony before Senate Panel

The Federal Reserve chairman Ben Bernanke testified before the Senate Panel regarding his re-nomination for a second term as a chairman for the Federal Reserve of the United States. The testimony revealed future plans settled by Bernanke to support economical growth further and reduce unemployment, in addition to address the inflation threats posed due pumping huge amounts of liquidity into the market.

Bernanke stated in the hearing that a need for a “Timely” stimulus withdrawal plan needs to be put into action, whereas Geithner, the Treasury Secretary, hinted yesterday that the administration intends to end the $700 billion bailout program produced to the market without giving any further details or schedule when the termination will be initiated.

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Gold Tops $1200 An Ounce

U.S. Dollar Trading (USD) never gained traction as global stocks markets roared back to life and risk was put ‘back on’. November ISM Manufacturing was weaker than forecast at 53.6 vs. 55.7 but this offset by October Pending Homes Sales at +3.7%. DJIA +126 points closing at 10471, S&P +13 points closing at 1108 and NASDAQ +31 points closing at 2175. Looking ahead, ADP National Employment forecast at -155k vs. -203k previously. Also released, Crude Oil Inventories forecast at -0.4% vs. 1% previously.

The Euro (EUR) was strong after testing support below 1.5000 in Early Europe went on to trade above 1.5100 resistance. EUR/JPY was extremely well supported in Asia on BOJ speculation and held those gains to close comfortably above 130. October German retail sales were +0.5% as forecast. Overall the EUR/USD traded with a low of 1.4970 and a high of 1.5119 before closing at 1.5090. Looking ahead, October PPI forecast at 0.0% vs. -0.4% previously.

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Euro Zone’s PMI Manufacturing Adds To Recovery Signs, While Unemployment Raises Concerns

Despite the improvement signaled recently in the euro zone, especially in the third quarter, the economy is still suffering from some problems resulting from the recession such as the escalating unemployment rate which is threatening recovery and raising concerns.

The euro zone emerged from the recession in the third quarter by expanding 0.4% from 0.2% contraction recorded in the three months ending June thanks to the monetary and fiscal policies adopted by the ECB and national governments to stall the economic degradation.

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China’s PMI Manufacturing Came Less Than Forecasts Amid Concerns About Withdrawing Stimulus Measures

A report today showed China’s PMI manufacturing coming less than forecasts after fears increased in global markets from withdrawing stimulus measures, which is pressuring companies to cut spending and reduce demand. Chinese manufacturers are waiting for a clear outlook for the global economy after reducing stimulus spending, and then expansion plans could be resumed or could be delayed for more time.

China’s PMI manufacturing remained at 55.2 in November which is the same prior reading and it came less than forecasts that referred to 55.9, having in mind that the index recorded 38.8 in the same period last year, after the financial crisis hit global demand.

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USD Lower, UAE Offers to Provide Liquidity to Dubai

FX Highlights

• The USD is trading lower as UAE Central Bank provides emergency liquidity to Dubai and global equity markets trade mixed, risk appetite improves as the UAE action helps to provide stability to the financial markets reducing fears of contagion from the Dubai debt crisis, GBP trades mixed initially pressured by report of a unexpected decline in UK consumer confidence with downside limited by report of an increase in mortgage approvals, EU consumer prices rise more than expected in November, JPY higher despite Japanese threats to take action against the JPY rise, commodity currencies trade higher as risk appetite improves and fears of significant fallout from the Dubai debt crisis fade
• Focus turns to today’s release of Chicago PMI and Canada’s IPPI/ RMPI and GDP
• Japan’s October industrial production rose 0.5%, November manufacturing PMI falls to 52.3 from 54.3 last month, October housing starts fall 27.1%, Japan’s PM says that Japan should act swiftly in regard to the Yen rise, Japan’s National Strategy Minister says the Japanese government has agreed to try to stop the JPY’s appreciation, JPY higher (more…)

UAE Central Bank Steps In To Help Dubai

U.S. Dollar Trading (USD) was extremely volatile as stock markets around the world went on a roller coaster ride with Asia stocks down over 3% and then European and US stock recovering late in the day. Large stops across the board sent EUR, AUD, Gold and Oil plummeting at the European opening but with Analysts calling the Dubai crisis not as bad as some feared and speculation that Abu Dhabi will step in and help its smaller state, the markets mood recovered from fear and panic. DJIA -154 points closing at 10309, S&P -19 points closing at 1091 and NASDAQ -37 points closing at 2138. Looking ahead, November Chicago PMI forecast at 53.7 vs. 54.2 previously.

The Euro (EUR) broke through 1.4900 at the height of the panic and fell quickly to lows of 1.4830 before recovering with Gold and Oil. EUR/JPY was extremely volatile as the pair tracked USD/JPY lower to 127 Yen before recovering to close at 129.50. Overall the EUR/USD traded with a low of 1.4830 and a high of 1.5025 before closing at 1.4990. Looking ahead, November EU Inflation forecast at 0.4% vs. -0.1% previously.

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Canada’s Current Account Deficit Hits Record High

The current account deficit was C$13.1 billion in the third quarter, slightly smaller than market expectations. The second-quarter deficit was revised to C$11.9 billion from the previous estimate of C$11.2 billion. A widening in the goods deficit more than offset a marginal narrowing in the services deficit and smaller investment income shortfall.

Canada’s traded goods balance moved further into deficit in the third quarter as the increase in exports was significantly slower than the rise in imports. This increase in the deficit marked the second quarter in a row that the goods account has been in deficit.

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Euro Zone Confidence Continues Up The Ladder

Confidence levels around the euro zone continues to improve which is what the European Central Bank (ECB) President Jean-Claude Trichet was projecting especially as the 16-nation region is showing increasing signs of recovery while the zone expanded by 0.4 percent in the third quarter.

The euro zone business climate indicator rose to -1.56 from revised prior -1.79 from -1.78 which is higher than the forecasted -1.65. Consumer confidence for November improved to -17 which is better than the prior -18 inline with expectations

Economic confidence rose to 88.8 from revised 86.1 from 86.2, higher than the expected reading of 88.0, this reading marked the highest level since September 2008. As consumers have higher confidence in the euro zone outlook is a good sign for the economy, since this might mean higher spending because consumers usually tend to spend when they are confident with the outlook.

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