Expert Analysis of Today's Market

• The dollar traded mixed on Thursday ahead of tomorrow’s US employment report. Sterling was supported by BOE executive director and chief economist Charles Richard Bean’s comment that he does not see many signs of a UK economic slowdown and the decline in inflation is temporary. The Canadian dollar was little changed after yesterday’s record close, the Australian dollar dropped on increased risk aversion, and the euro was modestly lower. The yen rose on carry-trade unwinding as Wall Street traded sharply lower on renewed credit-market concerns.


• The GBP/USD rose to a new 26-year high. The pair, in a clear uptrend, may go higher on its strong momentum. We are selling 1 unit of the pair on a bet that US employment data will be higher than expected tomorrow.

Financial and Economic News and Comments

US & Canada

• The ISM manufacturing index fell more than expected to 50.9 in October from 52.0 in September, the Institute for Supply Management reported. New orders decreased to 52.5 from 53.4 and the production index dropped to 49.6 from 54.6. The gauge of prices paid rose to 63.0 from 59.0 and export orders increased to 57.0 from 54.5. The manufacturing sector is slowing, but the domestic drag is dampened by strong export demand.


• US jobless claims fell a more-than-expected 6,000 to 327,000 in the week ended October 27, the Labor Department said. The four-week average increased 1,750 last week to 327,000, a 6-month high. Continuing claims jumped 65,000 to 2,588,000 in the week ended October 20, the latest week for which such data are available.

• According to data from the Commerce Department, US personal income rose 0.4% m/m in September, in line with expectation, following an upwardly revised 0.4% m/m increase in August, while September personal spending increased a less-than-expected 0.3% m/m, following a downwardly revised 0.5% m/m gain in August. Disposable personal income rose 0.4% m/m in September and 6.3% y/y. Yesterday’s GDP report included figures on personal income and spending for the full third quarter, so today’s income and spending report for September provided very little new information.


• The PCE deflator rose 0.2% m/m and 2.4% y/y in September. The core PCE price index, the Fed’s preferred inflation gauge, increased 0.2% m/m and 1.8% y/y, remaining within the Fed’s presumed 1-2% confortzone.

Europe

• UK’s PMI manufacturing index fell more than expected to 52.9 in October from a revised 54.7 in September, the Chartered Institute of Purchasing and Supply and Royal Bank of Scotland Group Plc said. That is the lowest level since December 2006, following five interest-rate increases in a year and sterling at a 26-year high.

Asia-Pacific

• Australia’s retail sales rose a stronger-than-expected 0.8% in September after a revised 0.8% gain in August, the Bureau of Statistics said; thus, reinforcing speculation the Reserve Bank of Australia will raise interest rates next week.

FX Strategy Update