Expert Analysis of Today's Market

• The dollar was mostly higher on Thursday supported by repatriation flows at the yearend. The European currencies declined. Sterling fell the most after breaking important support yesterday; today it was vulnerable to mostly negative economic data. In the process of testing support at par, the USD/CAD fell modestly. The yen rose, particularly against the high yielding currencies.


• The EUR/USD fell to the lowest level since October on speculation rising inflation may limit Federal Reserve interest-rate cuts at the same time as slowing European growth and credit market stress will prevent the European Central Bank from hiking its policy rate. There is minor support at 1.42-1.43. However, a continuing decline and a test of 1.40 are likely before the yearend.

Financial and Economic News and Comments

US & Canada

• The US gross domestic product rose at an unrevised 4.9% annual rate, faster than Q2’s solid 3.8% performance, the Commerce Department said. Core inflation was upwardly revised to 2.0%, on edge of Federal Reserve’s target zone.

• US initial jobless claims rose a larger-than-expected 12,000 to 346,000 last week, the Labor Department said. The four-week average of new claims climbed 4,250 to 343,000. The increase in claims is worrisome as the data indicate the possibility of a recession. The US economy is also at greater risk of faltering next year, according to a leading economic indicators index, and a gauge of manufacturing in the Philadelphia region fell the most since the last recession.

• The Conference Board’s US leading economic indicators index fell a larger-than-expected 0.4%, to the lowest level in more than two years.


• The Philadelphia Federal Reserve said its manufacturing index declined to a lower-than-expected -5.7, the weakest reading since 2003. The drop in the Philadelphia Fed’s gauge coincided with gains in some of the survey’s other indexes. Measures of orders and sales rose, while inventories and employment fell, the report showed.

Europe

• German consumer confidence recovered slightly from the lowest in almost two years. GfK’s index for January rose to 4.5 from a revised 4.4 in December. The indicator measuring households’ willingness to spend rose to -10.7 from -21.8. A gauge of consumers’ income expectations fell to -1.7 from zero and shoppers also became less optimistic on the economic outlook, with that indicator declining to 23.6 for January from 24.1 in December.


• The UK Q3 GDP expanded at a slightly faster than-forecast 3.3% y/y and 0.7% q/q, according to revised figures from the Office for National Statistics. The implied deflator fell to an annual 2.9% in Q3 from 3.9% in Q2.


• The UK Q3 current-account deficit widened to £20 billion, the most since records began in 1948, the Office for National Statistics reported.


• The UK budget deficit increased to £11.2 billion ($22.3 billion) in November, the most since records began in 1993 and up from £9.1 billion a year earlier, the Office for National Statistics said.

Asia-Pacific

• The Bank of Japan lowered its assessment of the economy and held interest rates steady as expected, signaling it is unlikely to raise the benchmark interest rate from 0.5% anytime soon. Governor Toshihiko Fukui said the BOJ will raise borrowing costs gradually as the US economy slows. BOJ nine board members agreed to hold the BOJ’s overnight rate at 0.5%, the first unanimous decision to do so since July.


• China raised interest rates for the sixth time this year after inflation accelerated at the quickest pace in 11 years. The benchmark 1-year lending rate will increase by 18 basis points to a 9-year high of 7.47%, starting tomorrow, the People’s Bank of China said. The 1-year deposit rate will rise by 0.27 basis points to 4.14%.

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