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Video for January 2nd 2009 (5 min): Manufacturing Data Grim to End 2008, but Stocks and Risk Appetite Rally

AUS Manufacturing PMI Increases Slightly, Though in 7th Month of Contraction

We begin with data from Australia where the country's manufacturing sector contracted for a seventh consecutive month in December. The manufacturing PMI increased 1 point to 33.7 in December, but measures below 50 indicate contraction. The new orders and unemployment sub-gauges fell, though at a slower rate than in November, while production, inventories and supplier deliveries fell faster than in November. In a second release, the RBA commodity price index was up 34.4% on the year in December.

AUD/JPY - Aussie Climbs on Risk Appetite

 

Stocks around the world welcomed the New Year with gains. Stocks in Japan were up 1.1%, London's main index was up 3%, and the US opened with the Dow climbing 150 points by noontime. The rise in equities helped risk appetite and boosted the fortunes of the Aussie against the Yen. Commodity prices including oil were up as well. From its low near 63.10, the Aussie was up 180 pips to set a new high for the week near 65.

EUR Manufacturing PMI Down Compared to Preliminary Version

In Europe, the euro-zone's manufacturing PMI slid to 33.9 last month from 35.6 in November. This was 0.6 points lower than the preliminary release of 34.5. The fall puts the index at its lowest level since the report was introduced in 1998 and shows that the Euro-zone recession continues to get deeper. It's also the seventh month in a row that activity in the manufacturing sector has shrunk.

UK Manufacturing PMI Sees Slight Increase

The index of activity in the UK manufacturing sector saw a slight increase to 34.9 from November's record low of 34.5. It's the eight month in a row that the sector shrank, similar to the rest of the world, and reflects the difficulties facing factories as retails cut back on orders in the face of weaker demand from both at home and abroad. Still, today's data beat forecasts of a further drop in the index which may imply that the rate of contraction may be slowing.

UK Mortgage Approvals Fall To 27K, Mortgage Lending Slightly Up

UK mortgage approvals fell to the lowest level since at least 1999 in November. Lenders granted 27,000 loans for house purchases, about 4K lower than in the previous month. The figure was below expectations and continues to show the woes facing the UK housing sector. The data from the Bank of England did see a surprise uptick in mortgage lending, which rose to 740 million pounds from 477 million pounds in October. This is still far where these levels were before the financial meltdown in autumn and it remains to be seen if banks begin lending more again. 

UK Housing Prices Down 2.2% in December

Meanwhile, housing prices continued to fall in the UK as well. For December, prices were down 2.2% on the month, which was below expectations and brought the annual rate to 16.2%. That fall in the annual rate was the largest since the index was launched in 1983. The average home price is now the same as in August 2004, which on a bright note has put house prices relative to earnings at its lowest level in five and a half years.  

GBP/USD - Pound Retests Support, Remains Below Resistance

 

The Pound-Dollar pair fell 270 pips from its high near 1.4650 overnight. At the NY open the pair bounced off its recent support near 1.4375 and pared about 50% of its fall. Last week we saw this pair fall below support at 1.4670 which then turned into resistance. We may be establishing a new sideways range, but a break of the recent support would signal a further fall in the Pound.

EUR/GBP - Euro Wins Back Half of Losses from Wednesday

 

The Euro-Pound pair clawed back some of its losses from Wednesday reclaiming the area near 0.96. This too was a 50% retracement from the most recent fall. New support has now been established near 0.9475, which was old resistance last week.

US ISM Manufacturing Index Weakest in 28 Years

US manufacturing ended 2008 in a grim state, falling to its lowest level since June 1980. The index fell 3.8 points to 32.4 in December from 36.2 in November. All the main sub-gauges showed further deterioration with new orders down to their worst level since 1948. The prices index continued to fall showing an ongoing retreat in inflationary pressures.

EUR/USD - Euro and Dollar Have Choppy Session With Dollar Ending on Top

 

The Euro-Dollar pair saw back and for the action today, and stuck to a much smaller range than we saw in Wednesday's trading. The pair began forming a sideways 130 pip range with support near 1.3850, which is where the pair trading near 2 PM EST, an overall gain for the greenback for the session.

USD/JPY - Dollar Rises vs Yen as US Stocks Rally in First Trading Day of 2009

 

The Dollar saw even better success against the Yen. The Dollar-Yen pair rose from Wednesday's close near 90.80 fell back down to test resistance-turned support near that level, and then took off about 100 pips during the NY session. That put the pair at 91.90, a new 3 week high. Stocks in the US continued gaining in the early afternoon, with the Dow up 200 points or 2.3%, and the Nasdaq and S&P 500 up around 2.5%, which helped fuel the Dollar strength in the pair in NY trading.

USD/CAD - Loonie Gains on Increase in Oil Prices

 

With oil prices up as well, as we mentioned before, the US Dollar-Canadian Dollar pair fell 180 pips in favor of the Loonie from its session high near 1.2275. The pair found support near 1.2065 which was lower than recent support this week. Oil prices rose $1.65 to 46.25 a barrel, as risk appetite extended to commodities and commodity-linked currencies like the Loonie, Aussie and Kiwi.

Next Week's Releases

With manufacturing data out of the way, next week brings reports on services from Australia, the UK, the Euro-zone and the US. Some other important releases the first half of next week include retail sales from Germany, flash CPI from the Euro-zone, and US factory orders.