Risk Trades Return

The dollar fell on Tuesday as risk sentiment improved on strong global economic data and calming Dubai fears. Manufacturing industries in the US, Europe and China continued to expand in November. Dubai World said it is in talks to restructure less than half its debt. US pending home sales rose to the highest level since 2006 and the US manufacturing PMI showed expanding manufacturing activity for a fourth consecutive month. The euro rose on signs the European manufacturing sector is expanding. Sterling advanced as Dubai worries subsided somewhat. UK banks have the most exposure to the trouble lender. The S&P 500 rose 13.23 to 1,108.86. The Australian and Canadian dollars were boosted by rising commodity prices and better risk appetite. The Reserve Bank of Australia raised its key interest rate for an unprecedented third straight month to 3.75% from 3.50%, as expected.

The USD/JPY rose as risk appetite improved. Overnight the pair was supported by the news of an unscheduled Bank of Japan meeting on assumption that the BOJ would address Japan’s deflation and the appreciating yen. However, the central bank took just a modest step in easing its monetary stance by offering 3-month loans to commercial banks at 0.1% under a new lending facility. The USD/JPY broke important support in the 87 area last week and made a 14-year low at 84.80, which is now important support. There are resistances in the 87 and 89 areas. The trend is clearly down. However, the pair is oversold, and the government, despite mixed signals, seems to worry about the appreciating yen.



Financial and Economic News and Comments

US & Canada
The ISM US manufacturing index declined to a lower-than-expected 53.6 in November from a 3-year high of 55.7 in October, indicating US manufacturing activity expanded for a fourth consecutive month but at a slower pace, according to data from the Institute for Supply Management. The index’s key components remained above the 50 growth level, signaling sustained expansion in the manufacturing industry. The new orders index rose to 60.3 from 58.5. The production index declined to 59.9 from 63.3. The employment index slipped to 50.8 from 53.1. Inflation grew at a slower pace in November, with the prices paid index falling to 55.0 from October’s 65.0.


US pending home sales unexpectedly rose 3.7% m/m in October with the pending home sales index increasing to 114.1 from September’s 110.0, data from the National Association of Realtors showed, registering a ninth consecutive month-on-month rise and the longest stretch of gains since records began in 2001. October pending home sales jumped 31.8% y/y.


US construction spending was unchanged m/m in October at a seasonally adjusted $910.77 billion annual rate after a downwardly revised 1.6% m/m drop in September and a downwardly revised 0.9% m/m decline in August, the Commerce Department said. October construction spending fell 14.4% y/y.

Europe
The eurozone seasonally adjusted unemployment rate was unchanged at 9.8% in October, Eurotat said, having raised the September figure from 9.7%.

The eurozone manufacturing PMI increased to 51.2 in November, revised up from a previously reported 51.0, from 50.7 in October, final November PMI data from Markit Economics showed, indicating eurozone manufacturing activity expanded for a second month and reached a 20-month high.

Germany’s manufacturing PMI rose to 52.4 in November, revised up from a previously reported 52.0, from 51.0 in October, according to final November PMI data from Markit Economics, showing German manufacturing activity expanded for a second month and rose to the highest level since June 2008.

Germany’s unemployment unexpectedly fell a seasonally adjusted 7,000 to 3.42 million November, according to figures from the Federal Labor Agency. The seasonally adjusted unemployment rate declined to 8.1%, as forecast, from October’s upwardly revised 8.2%.


Germany’s retail sales increased 0.5% m/m in October, rebounding from a revised 0.2% m/m decline in September, the Federal Statistical Office reported. October retail sales fell 1.7% y/y. The numbers came in as forecast.

The UK manufacturing PMI unexpectedly declined to 51.8 in November from a downwardly revised 53.4 in October, indicating the UK manufacturing sector continued to expand albeit at a slower pace, according to PMI data by the Chartered Institute of Purchasing and Supply and Markit Economics.

Switzerland’s GDP grew 0.3% q/q in Q3 2009 after a 0.3% q/q decline in Q2, the State Secretariat for Economic Affairs said. The Q3 GDP fell 1.3% y/y, following Q2’s revised 2.4% y/y contraction.

Switzerland’s SVME PMI rose more than expected to 56.9 in November from 54.0 in October, indicating Switzerland’s manufacturing sector continued its expansion for a fourth consecutive month, according to a survey from the Swiss Association of Purchasing and Materials Management and Credit Suisse.

Asia-Pacific
The HSBC China manufacturing PMI increased to 55.7 in November from 55.4 in October, according to an HSBC report, indicating China’s manufacturing activity rose above the 50-expansionary mark for eight consecutive months and expanded at the fastest pace since April 2004. The Chinese government’s manufacturing PMI, also released today, held at an 18-month high.

The Australian Industry Group-PricewaterhouseCoopers Australian performance of manufacturing index declined to a seasonally adjusted 51.2 in November from 51.7 in October, indicating Australia’s manufacturing sector expanded for a fourth straight month but at a slightly slower pace, the AiG and PwC reported. The production index increased to 54.0 in November from 53.0 in October, indicating manufacturing production continued its expansion for a fourth consecutive month. New orders posted a fourth straight expansion in November but at a much slower pace, with the new orders index falling to 51.9 from October’s 57.7. Manufacturing employment expanded for the first time in 23 months in November, with the employment index rising to 53.7 from October’s 44.6.

Australia’s seasonally adjusted building approvals unexpectedly slipped 0.6% m/m to 12,814 in October, the first decline in five months, after an upwardly revised 5.1% m/m increase in September, data from the Australian Bureau of Statistics showed. October building approvals rose 11.7% y/y. Approvals to build private houses increased 5.0% m/m to 9,642 in October, a tenth consecutive monthly gain, while approvals for apartments and renovations fell 19.3% m/m to 2,512.

FX Strategy Update



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Source: Hans Nilsson

01.12.2009