Expert Analysis of Today's Market

• In NY trading Thursday, the dollar was higher against most key currencies but lower versus the yen and sterling. The dollar approached a 2 1/2-year-low against the yen. Sterling made modest gains following a hawkish speech by BOE Deputy Governor Sir John Gieve. The Canadian dollar fell to a 4-month low on concern that slower US growth will weigh on the Canadian economy. The Australian dollar earlier strengthened on the lower Australian unemployment rate but later declined versus the dollar on increased risk aversion. Federal Reserve Chairman Ben S. Bernanke endorsed “quickly” implemented fiscal stimulus package and said the Fed is ready “to take substantive additional action” to help the US economy.


• The EUR/USD fell modestly on increased risk aversion after US equity sell-offs for a third day. Support exists in the 1.45-1.46 area and resistance in the 1.48-area.

Financial and Economic News and Comments

US & Canada

• In prepared testimony to the House Budget Committee, Federal Reserve Chairman Ben S. Bernanke endorsed a “quickly” implemented fiscal stimulus package, saying “a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next twelve months or so. Stimulus that comes too late will not help support economic activity in the near term, and it could be actively destabilizing if it comes at a time when growth is already improving.” Bernanke reiterated the pledge he made last week to enact “substantive” interest-rate cuts if required to counter the threat to the US economy posed by fragile financial markets and disappointing labor market conditions. The Fed is ready “to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks,” Bernanke said.


• US housing starts fell 14% m/m in December to a seasonally adjusted 1.006 million annual rate, marking the lowest level since 1991, after declining a revised 7.9% m/m in November to 1.173 million, the Commerce Department said. December housing starts fell 38.2% y/y. US building permits fell a more-than-forecast 8.1% m/m to a 1.068 million annual rate in December, after declining 0.7% m/m to 1.162 million in November. Housing starts and permits are currently at levels not seen since the 1990-91 recession.

• US initial jobless claims unexpectedly fell 21,000 to 301,000 in the week ended January 12, the Labor Department said. That marked the third straight weekly decline, bringing claims down to their lowest level since the week of September 22, 2007. The four-week average of new claims also decreased 11,750 to 328,500. The number of workers drawing unemployment benefits for more than one week rebounded 66,000 to 2,751,000 in the week ended January 5, reversing a decline the previous week. The four-week average of those continuing claims rose for the 12th straight week to its highest level since November 2005.

• The Philadelphia Federal Reserve Bank’s general economic index fell to -20.9, the lowest reading since October 2001. The Philadelphia Fed report showed new orders and shipments dropped, indicating the housing slump is spreading through the US economy. The index of new orders fell to -15.2 from 12. Shipments dropped to -2.3 from 15.


• Foreign investors sold a net C$4.84 billion ($4.73 billion) of Canadian securities, led by C$9.51 billion of Canadian stocks, Statistics Canada reported. Foreign portfolio investors also bought C$4.77 billion of Canadian bonds.

Europe

• The EMU’s trade surplus narrowed to €2.7 billion in November from a downwardly revised €3 billion in October. Growth in both exports and imports cooled. Exports increased 0.3% m/m in November, compared to 1.2% m/m in October. Imports rose 0.5% m/m in November, compared to 1.9% m/m in October.


• Sir John Gieve, Bank of England Deputy Governor, warned of a “sharp rise” in UK inflation in the coming months. However, he also warned of “testing times” for the BOE as growth slows at the same time as inflation rises.

Asia-Pacific

• Australian employment rose for a 14th month in December, adding to the longest hiring boom in almost three decades. The number of people employed rose 20,100 in December following a revised 47,600 increase in November, the Bureau of Statistics reported. The unemployment rate declined to 4.3% from 4.5%.

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