Action Insight Mid-Day Report
Dollar and Yen Retreats as Stocks Recover from Yesterday's Loss
Dollar and yen weakens mildly after US stock markets recovers from yesterday's sharp loss and opens mildly higher. Dollar index is back below 86.33 minor support, indicating that an intraday top is at least for at 87.31. Meanwhile, EUR/JPY and GBP/JPY are both held by last week's low and recovers. Also note that Canadian dollar and Aussie are both held by near term support against dollar too. After all, while up trend of dollar and yen are still expected to resume sooner rather than later, the current consolidation could extend further first. Elsewhere, Crude oil rebounds after hitting new low of 47.36 earlier today while Gold also recovers from 761.8.
Data released today saw Swiss CPI dropped -0.7% mom in November, worse than market expectation of -0.4% and +0.5% in October. CPI rose an annualized 1.5%, compared with consensus of 1.9%. The sharp fall in November inflation was due to decline in energy price and it increases chances for SNB to cut interest rate further after the 100 bp cut in early November. Also, markets are speculating that the SNB will looking into new tools which include buying bonds, intervening in currency markets and expanding swaps with other central banks as there isn't much room for rate cut with three months Libor now at 1.00%.
Eurozone PPI has record drop of -0.8% mom in Oct versus expectation of -0.3%. Year-on-year rate moderated from 7.9% to 6.3%. The UK's construction PMI came in at 31.8, worse than consensus of 33.5 and October's 35.1. This was the lowest level since the index began in 1997, and the ninth consecutive month that the index stayed below 50. Components such as employment, new orders and industry output dropped significantly.
After an unscheduled emergency meeting today, the Bank of Japan decided to, effective Dec 9, accept corporate debt of BBB rating or higher in order to encourage lending and activate trading of corporate bonds and commercial papers. The BoJ will also start a new lending facility for commercial banks in January.
RBA has the deepest rate cut since 1991, cut by 100bps, bringing the OCR down to six year low of 4.25%. Also released from Australia earlier today, Australian retail sales surprisingly rose 0.7% mom in November, big improvement from -1.1% in September and better than market expectation of -0.2%. In terms of components, food and other retailing rose 0.4% and 7.6% respectively while others such as clothing and household goods dropped. As most of the gain was brought by 'other retailing' which is volatile in nature, we do not treat the rise as representative. In fact, given the sluggish economic growth and restrained domestic spending, we expect retail sales to be under pressure for some time.
In addition Australia reported a seasonally adjusted current account deficit of A$ 9.736B in 3Q08, better than consensus of a deficit of A$11.1B. The figure for 2Q08 was revised to deficit of A$14.043B from A$12.77B. The current account deficit has been narrowed for the second consecutive quarter and was helped by increase in export of coal and iron ore, especially to China, as well as reduced consumer spending on imported goods such as autos. The situation is expected to persist in the coming quarter. The net income deficit narrowed to A$11.07B in seasonally adjusted terms, the smallest in 3 years while goods and services trade balance recorded a surplus of A$1.43B from a deficit of A$1.26B.
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