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Video for December 9th, 2008 (4 min): Japanese GDP Data and Weak US Stocks Bring Risk Aversion Back to Markets

JPN 3rd Quarter GDP Revised Down

Japan's economy shrank more than originally estimated in the 3rd quarter. Growth was revised down to show a 0.5% contraction in quarterly terms while the annual pace decreased at an annual 1.8% pace. With export demand hurting as the global recession deepens Japanese firms are cutting back production, jobs and spending. Business spending declined 2% for the quarter and companies reduced the amount of inventory they held.

JPN Leading Index Declines, Australian Business Confidence Down

The Japanese leading index declined to 85% for October, showing a pretty sharp reduction from September's figure. Meanwhile in Australia business confidence fell another point to -30 as business conditions fell sharply.

AUD/JPY - Risk Aversion Boosts Yen

 

The Japanese GDP data weighed on investor sentiment as it implies that Japan's recession is more severe than previously thought, and reflects the weakening position of the global economy. The Aussie-Yen pair gave up most of its gains from yesterday's session, testing support at 59.90 following a 200 pip swing.

UK Housing Prices Continue Falling, But House Price Balance Improves

In the UK, housing prices continued to fall in November, though the number of surveyors seeing lower prices compared to rising prices improved to -76.5% from -81.0%. That was the highest level since February. A second release however showed housing prices down 7.4% compared to a year ago.

UK Manufacturing Production Contracts Sharply in October

Manufacturing production in the UK contracted 1.4%, almost three times as much as predicted by economists. The decline was widespread and was the biggest monthly decline since 2005. UK consumers are shopping less as they watch their budgets in the face of their country's recession, which is forcing companies to scale back production.

GBP/USD - Pound Weakens Following Data

 

The Pound weakened against the Dollar, as the weak housing and manufacturing data has some circles calling for another bold rate cut from the Bank of England despite an aggressive 100 basis point cut last week. The Pound-Dollar pair fell 200 pips from its open to test support at 1.4680. Yesterday the pair reached 1.50.

GBP/JPY - Pound Pressured by Data & Risk Aversion Slides 270 Pips vs Yen

 

The Pound-Yen pair slid 270 pips from its open extending a decline that started following a strong rally in the Pound seen on Friday and Monday. With risk sentiment turning back to aversion and the Pound pressured by its fundamental data the pair fell to test 135.50.

GER ZEW Investor Sentiment Improves for 2nd Straight Month

German investor confidence surprised forecasts on the upside, and rose for a second straight month, bringing the sentiment index to -45.2. It reflects a positive reaction to the ECB's recent interest rate cuts which included an unprecedented 75 point basis cut last week and to recent measures announced by the government.

US Pending Home Sales Down 0.7%

In the US, pending home sales fell by 0.7% in October, but that was a much better figure than anticipated. The report shows that banks remain reluctant to lend and that the housing market recession will continue into a 4^th year.

EUR/USD - Euro Tests 1.30 vs Dollar

 

The Euro-Dollar fell overnight, following a sharp 200 pip increase yesterday. The pair found support at the 1.28 level to start NY trading and proceeded to rally again to set a new high at 1.30. From there it turned back once more, sliding 100 pips to 1.29 by 2 PM EST.

USD/JPY - Yen Gains on Dollar as Bears End 2 Day Rally in US Stocks

 

Stocks in the US fell into the red in afternoon trading with the Dow Jones index down more than 200 points. That extended the overnight decline in the Dollar-Yen on increased risk aversion as a result of weak fundamentals from Japan and the UK. The pair reached the 92 level as the pair fell about 100 pips during the session.

CAN Bank of Canada Cuts rates 0.75% to 1.50%

The Canadian central bank cut its benchmark interest rate by 75 basis points, increasing its pace of cuts. Expectations had been for a 50 basis point cut, though with other central banks around the world accelerating the pace at which they are lowering borrowing costs, there was a good chance that the Canadian central bank would follow suit. The move puts the interest rate at its lowest level since 1958. The accompanying announcement also said for the first time that the Canadian economy "is now entering a recession."

USD/CAD - Loonie Gives Up Yesterday's Gains 

 

The US Dollar-Canadian Dollar pair climbed back to the 1.2740 level after falling to the 1.25 level yesterday, effectively wiping away the Loonie's gains from the previous session. There was a counter-rally in the Loonie's favor but it was short lived, and the pair traded near 1.2670 as of 2:30 PM.

Tonight's and Tomorrow's Releases

Tonight, Jpan will release its corporate goods price index and a easure of investment spending. Australia posts data on consumer sentiment and home loans, and the UK releases its NIESR monthly GDP estimate.

Overnight, Germany reveals its wholesale price index, and Switzerland posts its ZEW expectations. Tomorrow, Canada releases its measure of labor productivity while the US reveals wholesale inventories.