Sunday, November 2, 2008

Dollar and Yen Rally as Markets Retrace Gains from Middle of the Week

Dollar and Yen Rally as Markets Retrace Gains from Middle of the Week

JPN Household Spending Drops 2.3%, Unemployment Rate Falls to 4%

We begin with a barrage of data from Japan to end the month. Household spending declined 2.3% in September compared to a year ago, the seventh consecutive month that spending has been negative. The figure did beat expectations of an even larger decline. In another release that beat forecasts, the unemployment rate fell to 4%.

JPN Consumer Inflation Steady at 2.1%

Consumer inflation for the country remained steady at an annual pace of 2.1%. CPI excluding food inched down to show a 2.3% gain while inflation excluding both food and energy rose to 0.2%.

JPN Tokyo Consumer Inflation Slows More Than Expected

In the Tokyo area, consumer inflation for October cooled more than expected, posting a 1.2% change. Both core measures eased as well. This may be a sign that the fall in commodity prices is filtering through to the retail level. It also gave the Bank of Japan some extra breathing room when they decided on interest rates.

JPN Bank of Japan Lowers Interest Rates

And in the first time in 7 years, the Bank of Japan lowered their benchmark rate, easing it 20 basis points to .30%. Its an attempt to try and react to the recessionary conditions and the loss of confidence in money markets. The chance of a move was anticipated throughout the week.

AUD/JPY - Aussie Gives Up Gains From Earlier in the Week as Asian Stocks Mixed

Dollar and Yen Rally as Markets Retrace Gains from Middle of the Week

Japanese markets slumped Friday after the rate cut, as the markets had expected an even bigger reduction. Other markets in Asia were mixed as investors locked in profits following three days of solid gains. A similar thing can be said of the Yen cross pairs. Here, the Aussie-Yen, retreated from yesterday's high receding to 63.10 in the European session following an almost 1200 pip rally during the rest of the week. In the NY session, the pair rose back above the 65 level as US stocks performed well.

GER Retail Sales Fall 2.3% in September

Retail sales in Germany, Europe's largest economy fell 2.3% in September, undershooting economists' forecasts as consumers cut back their spending in the face of the worsening economic outlook as a result of the financial crisis. The 2.3% decrease was the biggest drop since May of 2007.

EUR Flash CPI Shows Inflation Cooling, Unemployment Rate Steady

In the Euro-zone, annual inflation is expected to be 3.2% in October, according to the flash estimate from Eurostat. It was 3.6% in September. Slowing inflation will give the European Central Bank more room to cut rates as it focuses on getting the economy growing again.

EUR/CHF - Euro Rallies on Risk Appetite This Week

Dollar and Yen Rally as Markets Retrace Gains from Middle of the Week

After falling late yesterday and in the Asian session, the Euro-Swiss Franc pair rallied 250 pips from its intra-day low near 1.4540. After falling on Monday the return of risk appetite has brought the pair back above its start for the week near the 1.48 area.

US Income Falls 0.3%, Income Rise 0.2%

US consumer spending was down 0.3% in September, which reinforces yesterday's GDP data which showed consumer scaling back their purchases during this time of economic uncertainty. September's result was the weakest in 4 years and caps the weakest quarter in spending in three decades. Consumers are facing increased unemployment, high food and fuel costs, and falling housing prices which has crimped spending. In addition, a collapse in lending and sentiment as a result of the financial turmoil may spell further cut backs in spending going forward. Incomes grew 0.2% in September, a slower pace compared to the downwardly revised 0.4% seen in August.

US Chicago PMI Plummets, UMich Index Shows Consumers are Gloomy

The Chicago PMI measure of business activity fell to its lowest level since recession of 2001. Sub-gauges for production and new orders plummeted bringing the overall index down to 37.8 for October, down from 56.7 in September. The UMich index of Consumer Sentiment posted a 57.6 in October, a record 12.7 point drop from the 70.3 seen in September. The data suggests the drop in consumer spending will continue.

EUR/USD - Euro Retraces Further vs Greenback

Dollar and Yen Rally as Markets Retrace Gains from Middle of the Week

The Euro-Dollar continued its retreat from its high this week near 1.33. After a strong rally during the middle of the week, the pair has retraced to the 61.8% level around 1.27. This week showed markets returning to some of their pre-credit crisis ways, though how things go next week will reveal whether the recent rally was a correction, or perhaps the start of a new trend.

USD/JPY - Dollar Pares Losses to Yen as US Stocks Rally

Dollar and Yen Rally as Markets Retrace Gains from Middle of the Week

As we mentioned before, US stocks did well today, with the Dow Jones index climbing 170 points in the early NY afternoon. The positive sentiment in US markets helped the Dollar pare its overnight losses to the Yen and retested resistance at 99.10.

CAN GDP Falls 0.3% in August

In Canada, GDP growth for the month of August declined 0.3%, partly reversing the 0.7% gain seen in July. Wholesale trade, manufacturing, and the energy sector, which were the main contributors to the July increase, all retreated in August.

USD/CAD - Loonie Reclaims 1.20 Area

Dollar and Yen Rally as Markets Retrace Gains from Middle of the Week

The US Dollar-Canadian Dollar rose overnight, but then pared those gains in a 400 pip fall in NY trading. That brought the pair back down to the 1.1950 area, which is where the pair fell to yesterday after this week's 1000 pip move in favor of the Loonie.

Releases Early Next Week

Next week starts with data on inflation, house price and retail sales. That will be followed Monday by manufacturing activity data from the UK and US, and interest rate decision by the Reserve Bank of Australia.

Later in the Week

The rest of the week brings important releases. The latter half of the week will see interest rate decisions from the Bank of England and the ECB and the US non-farm employment change. And of course, on Tuesday the US holds its presidential election.

Capital Market Services, L.L.C.

©C2004-2005 Globicus International, Inc. and Capital Market Services, L.L.C. Any information in this report is based on data obtained from sources considered to be reliable, but no representations or guarantees are made by Capital Market Services, L.L.C. with regard to the accuracy of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. Capital Market Services, L.L.C. accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this report. No part of this report may be reproduced or distributed in any manner without the permission of Capital Market Services, L.L.C.

  • Markets make massive closing gains
  • Budget protesters surround Capitol
  • Nader knocks bailout bill, urges start from scratch