Expert Analysis of Today's Market

• Trading mixed Thursday, the dollar was higher against the yen after continued equity-market gains but little changed versus other key currencies. The dollar initially gained against the euro and sterling after the Bank of England cut its key interest rate a quarter-point to 5.5% and the European Central Bank held rates steady at 4%. The dollar pared gains after important resistance levels held. Investors await Friday’s employment reports. Recent indicators on US job growth were conflicting: ADP’s forecast of 189K private new jobs increased expectations of a strong job number but contradicting to low ISM employment indicators.


• After having broken its 3-month uptrend, the EUR/USD is in the process of testing the 1.45-handle support. The pair failed to break this support today. The US non-farm payrolls report could be a catalyst tomorrow. There is resistance at 1.48.

Financial and Economic News and Comments

US & Canada

• US initial jobless claims fell 15,000 to 338,000 in the week that ended December 1, the Labor Department said. The four-week moving average rose to 340,250, the highest since October 2005, from 335,500 a week earlier.


• Despite the drop in jobless claims this week, the trend is up. The claims number is a good leading indicator. If the trend continues higher, the risk of a recession will increase significantly. At the beginning of the 2001 recession (pink area), the four-week moving average stood at 380,000.

• The number of home loans with delinquent payment rose to 5.59%, the highest since reporting began in 1986, the Mortgage Bankers Association said.

Europe

• The European Central Bank kept its benchmark interest rate unchanged at 4%. ECB President Jean-Claude Trichet is concerned over rising inflation; however, not using the word vigilance. Thus, the ECB is likely to keep interest rates at 4% at the next policy meeting. There is “strong short-term upward pressure on inflation,” Trichet said at a press conference in Frankfurt today. The ECB “stands ready to counter upside risks to price stability. We will not tolerate second-round effects.”


• The ECB today lowered its forecast for 2008 economic growth to 2% from 2.3%. The ECB raised its projection for 2008 inflation to 2.5% from 2%, still above the ECB below 2% inflation target. The bank forecast the inflation rate will drop to 1.8% in 2009.


• The Bank of England cut its benchmark interest a quarter-point to 5.5%. “Conditions in financial markets have deteriorated and a tightening in the supply of credit to households and businesses is in train, posing downside risks to the outlook for both output and inflation further ahead,” the BOE said.
• German Finance Minister Peer Steinbrueck said he is “not happy” about the US dollar near $1.50 versus the euro and wants the G-7 to examine whether exchange-rate movements have become “disorderly.”


• The OECD said the central banks in the main economic areas should avoid cutting interest rates, predicting the world economy will weather the fallout from the US housing slump. Economic growth in the OECD area will slow to 2.3% in 2008, from the 2.7% forecast in May. Rate cuts risk increasing inflationary expectations, the OECD said in its semi-annual outlook. “Monetary policy in the three main areas should remain on hold,” Jorgen Elmeskov, the OECD’s acting chief economist, wrote. If inflation expectations were to increase, it may even be “necessary to pay a price in terms of lower activity in the short-term” to lower them.

Asia-Pacific

• Japan’s leading index fell to 20.0 in October, its third consecutive decline, indicating the economy is likely to slow. The coincident index, a reading of current business conditions, was 66.7 in October, its seventh month above 50, the Cabinet Office said.


• The Reserve Bank of New Zealand left its benchmark interest rate at a record high of 8.25% and said inflation pressures will keep the rate at that level until 2009.

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