Expert Analysis of Today's Market

• The dollar rose against most key currencies as the rest of the world is unlikely to escape the US economic slowdown. The yen rose slightly as the previous 2-day stock-market rally stalled. US economic data were mixed. European data showed early signs of economic weakness as the credit crunch is spreading, possibly leading to interest-rate cuts in Europe. The Canadian dollar was pressured after a report showed Canada’s current account deficit dropped to the lowest in 4 years.


• The EUR/USD fell on signs of European economic weakness. Europe’s yield and growth advantages are narrowing. The European economies are slowing; thus, increasing speculation the European Central Bank’s tightening cycle is approaching a peak. The ECB has not followed up its hawkish rhetoric by action. Instead the ECB is making plenty of liquidity available in the interbank market. The EUR/USD is still in an uptrend. If this is broken, the pair will fall dramatically.

Financial and Economic News and Comments

US & Canada

• US new-home sales rose slightly in October as September new-home sales were revised sharply lower. October new-home sales increased 1.7% m/m but fell 23.5% y/y to a seasonally adjusted annual rate of 728K after falling 0.1% m/m in September to an annual rate of 716K, the Commerce Department said. Originally, September sales were reported as a 4.8% m/m increase to 770K. The median price of a new home fell 13% y/y to $217,800 in October from $250,400 in October 2006. The ratio of new houses for sale to houses sold declined during October, going to 8.5 from 9.0 in September.

• The US Q3 GDP grew at a 4.9% q/q (revised from 3.9%) annual rate, the most in four years, according to the Commerce Department. A narrower trade deficit, higher inventory and more business investment than previously estimated contributed to the improvement in growth. The trade deficit narrowed to an annual pace of $533.4 billion, adding 1.37 percentage points to GDP, the most since 1996.

• US corporate profits for the third quarter, earnings adjusted for the value of inventories and depreciation of capital expenditures declined 1.2 % q/q, to an annual rate of $1.62 trillion. Profits in Q3 rose1.9% y/y.


• The White House lowered its forecast for 2008 GDP growth to 2.7% from 3.1%. “The housing market decline has been more significant than we expected,” Edward Lazear, chairman of the White House’s Council of Economic Advisers said. The unemployment rate is forecast to rise to 4.9% in 2008. The Council expects consumer prices to moderately increase 2.1% compared to a previous forecast of a 2.5% rise.


• US initial jobless claims increased a larger-than-expected 23K to 352K in the week that ended November 24, the most since February, the Labor Department said. Continuing claims increased 112K to 2.665 million, the highest since December 2005.


• Canada’s current account surplus fell to a 4-year low of 1 billon and the trade surplus fell to an 8-year low.

Europe

• The NTC Economics retail PMI index for German retail sales fell to 43.6 in November from 48.6 in October, the biggest drop since May 2004. The EMU retail sector seems slowing down as well with the euro zone retail PMI falling to 45.9 in November from 48.0 October. The qEcon leading economic index for Germany also indicates German economic slowdown.

• UK house prices declined 0.8% m/m to £184,099 ($381,000) in November, the largest drop in 12 years and mortgage approvals fell to the lowest since February 2005, the Nationwide Building Society said. Meanwhile, banks granted 88K loans for home purchase in October, down from 100K in September, the biggest decline in 10 months, the Bank of England said.


• BOE Governor Mervyn King said the BOE will offer financial institutions emergency funds to prevent a renewed increase in money-market interest rates from hurting economic growth. “Market fears about the possibility of further movements in asset prices might impair the balance sheets of the banking system in the US, which would lead to a classic credit squeeze,” King told UK lawmakers. “This is a risk rather than something that’s actually happened yet.”

Asia-Pacific

• Japan’s industrial production rose to a record in October on strong export demand. Production climbed a seasonally adjusted 1.6% m/m in October, following a 1.4% m/m drop in September, the Trade Ministry said. Production rose 4.7% y/y.

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