Risk Appetite Surges on Strong GDP

* The dollar and yen fell as risk appetite increased after the US economy grew faster than expected. US GDP rose a stronger-than-expected 3.5% in Q3 2009 as personal consumption contributed the most to GDP gains since Q4 2006. Inventory gains were modest and will likely rise strongly next quarter, which should ensure strong Q4 GDP growth. Meanwhile, the price deflator was well contained, reducing the risk of premature interest-rate hikes. Commodity prices and bond yields rose on the good news and the S&P 500 index surged 23.48 to 1,066.11. The euro rose above the 1.48 handle, EMU sentiment improved and German unemployment unexpectedly declined. Sterling gained for a fourth consecutive day on optimism of the UK banking sector and the rise in UK mortgage approvals to the highest level in 18 months. The Australian and Canadian dollars reversed yesterday’s losses as risk appetite and commodity prices rose.

* The USD/JPY advanced as risk sentiment improved. Japan’s industrial production rose for a seven consecutive month in September. After making a double bottom in the 88 area, the USD/JPY may be forming the right shoulder in an inverted head-and-shoulder. The pair has support in the 90 area and resistance in the 92.



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Financial and Economic News and Comments

US & Canada

* US GDP expanded at a higher-than-expected 3.5% annualized rate in Q3 2009, the first expansion in more than a year and marking an end of the recession, after a -0.7% annualized pace in Q2, according to the first Q3 GDP estimate from the Commerce Department. The largest positive contributions to the Q3 GDP growth rate were personal consumption, inventories, and home building, while the weakest components were international trade and business investment in structures (such as offices and retail space). The GDP price index increased at a 0.8% annualized rate in Q3 after remaining flat in Q2. Real personal consumption expenditures rose a more-than-expected 3.4% in Q3 after declining 0.9% in Q2. The core PCE rate slid to 1.4%, as forecast, from Q2’s 2.0%.

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* US initial jobless claims declined 1,000 to 530,000 in the week ending October 24 from the previous week’s 531,000, the Labor Department said. The 4-week moving average of new jobless claims decreased 6,000 to a new recovery low of 526,250. Continuing claims in the week ending October 17 dropped 148,000 to 5,797,000 from the preceding week’s upwardly revised 5,945,000. The 4-week moving average of those continuing claims fell 78,750 to 5,960,750. The insured unemployment rate for the week ending October 17 declined to 4.4% from the prior week’s 4.5%.

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* Canada’s industrial product prices and raw material costs fell for the second time in three months in September. Industrial product prices declined a more-than-expected 0.5% m/m in September after a 0.5% m/m increase in August, while raw materials prices fell a more-than-expected 1.1% m/m following August upwardly revised 3.8% m/m advance. The declines were mainly due to falling petroleum prices.

Europe

* The eurozone economic sentiment indicator climbed to a higher-than-expected 86.2 in October from 82.8 in September, indicating eurozone economic confidence rose for a seventh straight month and to the highest level since September 2008, data from the European Commission showed. Consumer confidence continued to improve in October, with the consumer confidence gauge increasing to -18, as forecast, from September’s -19. Industrial confidence advanced to -21 in October, the highest level in a year, from -24 in September. Confidence in the services sector improved for a seventh straight month in October, with the services confidence measure increasing to -7, a 12-month high, from September’s -9. In a separate measure of business confidence released by the EC, the business climate indicator also climbed for a seventh consecutive month in October to -1.78, an 11-month high, from -2.07 the prior month.

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* Germany’s unemployment unexpectedly fell a seasonally adjusted 26,000 to 3.43 million in October after falling a revised 15,000 in September, according to figures from the Federal Labor Agency. The seasonally adjusted unemployment rate unexpectedly declined to 8.1% from 8.2%.

* According to figures from the Bank of England, total net lending to individuals increased £0.7 billion in September after rising £0.9 billion in August. Net lending secured on dwellings rose £0.9 billion, below August figure of £1.3 billion, but above the previous 6-month average of £0.6 billion. The number of loan approvals for house purchase rose to 56,215 in September, their highest level for 18 months and above the previous 6- month average, from 52,970 in August. Consumer credit declined £0.3 billion, below the previous 6-month average.

Asia-Pacific

* Japan’s industrial production advanced a more-than-expected 1.4% m/m in September, a seventh consecutive month-on-month gain, after rising 1.6% m/m in August, preliminary September IP data from the Ministry of Economy, Trade and Industry showed. The September IP index was at 85.1. The largest positive contributions to the September IP gain were transport equipment, electronic parts and devices, and electrical machinery. Despite the month-on-month gain, September IP fell 18.9% y/y after falling 19.0% y/y the prior month.

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* Japan’s corporate service prices fell a less-than-expected 3.2% y/y in September, a twelfth consecutive yearon- year fall, after a record 3.5% y/y decline in August, according to data from the Bank of Japan.

* The Conference Board Australian leading economic index, a measure of future economic activity, advanced 1.8% m/m to stand at 118.6 in August after upwardly revised gains of 1.0% m/m in July and 1.1% m/m in June, the Conference Board reported. During the 6-month period through August, the LEI grew 5.7%, and five of the seven components rose. The coincident economic index, measuring current economic activity, was down 0.2% m/m in August, its first decline since May 2008, to stand at 113.2, after remaining unchanged in July and increasing 0.1% m/m in June.

FX Strategy Update



©2004-2009 Globicus International, Inc. and Capital Market Services, L.L.C.

Source: Hans Nilsson

29.10.2009