Expert Analysis of Today's Market

• The dollar traded mixed in NY volatile trading Thursday. US industrial production plunged the most since 1974, consumer prices were flat, initial jobless claims remained at recessionary levels, the Philadelphia Fed business index dropped to the lowest level since October 1990, and homebuilder confidence fell to the lowest since 1985. The euro fell modestly as crude oil dropped below $70 a barrel to the lowest since June 2007. Despite falling oil prices and large declines in precious metal prices, the Australian and Canadian dollars gained. Sterling rose slightly.
• The USD/JPY rose as US stocks rallied in a volatile trading day. Having recently traded between the 99-handle support and the 103-handle resistance, the USD/JPY failed to break the 99 support today. The USD/JPY long-term trend is still down, but we expect further sideways trade this week.

Financial and Economic News and Comments

US & Canada

• US consumer prices were unchanged m/m in September versus a consensus expected 0.1% m/m increase and a 0.1% m/m drop in August, according to data from the Labor Department. The CPI rose 4.9% y/y. Energy prices, which fell 1.9% m/m, were the main reason for the CPI deceleration. Food and beverage prices increased 0.6% m/m in September, up 6.0% y/y. Excluding food and energy, the core CPI increased 0.1% m/m in September, up 2.5% y/y. Excluding energy, the CPI increased 0.2% m/m in September, up 3.0% y/y. Real average hourly earnings increased 0.2% m/m in September but declined 1.9% y/y.  Overall, the September CPI numbers show a US recessionary economy is starting to cool inflation, giving the Federal Reserve scope to cut interest rates further.

• US initial jobless claims fell 16,000 to 461,000 in the week ending October 11, remaining at recessionary levels, following a revised 477,000 the prior week, data from the Labor Department showed. The 4-week moving average of new jobless claims climbed to 483,250, the highest since the 2001 recession, from 482,500. Continuing claims in the week ending October 4 rose 40,000 to 3.711 million, the highest since June 2003, from 3.671 million the prior week. The unemployment rate among people eligible for jobless benefits rose to 2.8% from 2.7%. Overall, the figures signal a tenth consecutive payroll drop for October.
• US industrial production dropped a more-than-expected 2.8% m/m in September, the most since 1974, following August’s revised 1.0% m/m decline, data from the Federal Reserve showed. September’s IP fell 4.5% y/y. Manufacturing output fell 2.5% m/m in September. Capacity utilization declined to 76.4% in September following August’s 78.7%. Manufacturing capacity utilization fell to 74.5% versus 76.6%. The weak IP numbers suggest the Fed will likely lower interest rates further to prevent a severe US recession.

• The Philadelphia Fed general business activity index plunged to a lower-than-expected -37.5 in October, the lowest reading since October 1990, from 3.8 in September, according to data from the Federal Reserve Bank of Philadelphia. A negative reading signals contraction. The index averaged 5.1 in 2007. The new orders index slumped to -30.5 in October, the lowest level since August 1980, from 5.6 in September. The shipments index dropped to -18.8 from September’s 2.6. The prices paid index plunged to 7.2, the lowest level since July 2003 and indicating that price pressures moderated significantly, following September’s 31.5. The prices received index fell to 5.3 from September’s 15.5. The employment index dropped to -18 in October after being little changed in September. The number of employees plunged to -16.2 six months from now after 15.5 in October, indicating increasing layoffs. Overall, the figures show manufacturing in the Philadelphia region deteriorated significantly in October, signaling a worsening US recession.

• Net long-term TIC flows rose to $14 billion in August, below the consensus forecast, following July’s revised $8.6 billion, while total net TIC flows fell to $0.4 billion, according to data from the US Treasury.
• The NAHB US builder confidence index fell to 14 in October, indicating confidence among US homebuilders dropped in October to the lowest level since the record began in 1985, following a downwardly revised 17 in September, the National Association of Home Builders/Wells Fargo said. A reading below 50 means most respondents view conditions as poor.
• Canada’s manufacturing shipments fell 3.7% m/m to $52.0 billion in August after four consecutive monthly increases, mainly due to a sales drop in the petroleum and coal products industry, Statistics Canada reported.

Europe

• The Swiss government provided UBS AG, the European bank with the largest losses from the credit crisis, a $59.2 billion bailout and pushed Credit Suisse Group AG to raise funds.

Asia-Pacific

• Japan’s machine tool orders dropped 20.1% y/y in September, down from August’s 13.9% y/y decline but up slightly from the previous estimate of a 20.7% fall, the Japan Machine Tool Builders’ Association reported. Domestic orders plunged 32.1% y/y in September, while foreign demand for Japanese machine tools fell 10.0% y/y.

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