Asian stock markets have been mixed overnight with the Shanghai Composite up over 1.5% on the day, but the Nikkei nearly a percent lower – weighed down primarily by speculation that Japan Airlines may have to file for bankruptcy. Shares in the troubled airline are down over 25% from yesterdays close to 67 yen (the lowest levels since the shares began trading) and sentiment is particularly weak given that the carrier has already accepted 4 bailouts from the Japanese government since 2001. Despite the knock to risk sentiment, the USD has been largely unchanged from the end of the European session yesterday, with EURUSD at 1.4340 and USDCHF at 1.0380.
The main data from yesterday’s session was US Consumer Confidence which was better than expected on balance; despite a slight miss compared to this month’s consensus estimate (52.9 vs. 53.0 expected), there was a much larger revision higher to the month prior (to 50.6 from 49.5). This news marked the turning point in the day for the USD which had come under some selling pressure early at the London open, but quickly pared these losses after the release. EURUSD sold off from 1.4445 levels down over a big figure to current 1.4340 levels, and gold also tumbled back below $1100 levels – a move which has extended this morning to lows of $1090.95 before recovering modestly to $1096.
In the session ahead the main European data will be the Eurozone M3 data and Swiss KOF Leading Indicator. The latter is likely to have the greatest chance of moving the market, with analysts looking for an uptick to 1.73 from last month’s 1.62. With EURCHF below 1.4900 levels and trading in holiday liquidity, it will be interesting to see if an upside surprise in the data can strengthen CHF to levels where SNB feels the need to step in. The afternoon will be quiet on the economic docket, with only the US Chicago Purchasing Managers Index due; and we expect month-end flows to dominate FX moves through to the end of the week.
The dollar rose for the first time in four days against the yen on speculation U.S. companies are bringing back earnings on overseas assets before the year ends. The dollar also gained on prospects U.S. reports tomorrow will show the world’s largest economy is recovering, backing the case for the Federal Reserve to withdraw emergency stimulus measures. The dollar rose to 91.51 yen as of 6:46 a.m. in London from 91.30 yen in New York on Dec. 25. The U.S. currency was at $1.4388 per euro from $1.4411 in New York on Dec. 25.
The yen fell against all of its 16 major counterparts as Asian stocks climbed after a government report said Japan’s manufacturers raised output at the fastest pace in six months in November, damping demand for the currency as a haven. The euro traded at 131.66 yen from 131.64 yen.
Crude oil rose for a fourth day, its longest winning streak since October, on signs of an economic recovery in the U.S., the world’s largest energy consumer. Oil climbed above $78 a barrel to a three-week high after initial U.S. jobless claims dropped more than expected, prompting traders to close bets on falling prices. A strengthening labor market may boost consumer spending, the biggest part of the U.S. economy.
€
The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4260 level and was capped around the $1.4410 level. The common currency continues to unwind on credit-related concerns stemming from Greece’s massive fiscal deficit and the continued improvement in U.S. economic performance. The U.S. dollar has rallied recently on positive news, a shift from its recent underperformance on improving U.S. economic fundamentals. The Federal Open Market Committee this week voted to keep interest rates unchanged and acknowledged improvements in the U.S. labour market. The Fed also reported that it will continue to unwind its emergency spending programs in 2010. Fed funds futures are currently pricing in monetary tightening by June 2010. The FOMC’s next interest rate decision is scheduled for 27 January. Data to be released in the U.S. next week include the Chicago Fed’s national activity index, Q3 gross domestic product, and the GDP price index, personal income, personal spending, durable goods orders, new home sales, and University of Michigan consumer sentiment. In eurozone news, German Chancellor Merkel won approval from the upper house of parliament to enact the Rapid Economic Stimulus Law, an initiative to cut taxes in the new year and provide at least €8.5 billion in fiscal stimulus. Data released in the eurozone today saw an EMU-16 trade surplus of €8.8 billion in October, up from a revised €0.9 billion in September, while the October current deficit narrowed to -€4.6 billion. Also, the German Ifo business climate index expanded to 94.7 in December from an unrevised estimate of 93.9 in November. Additionally, German factory gate prices were up 0.1% m/m and off 5.9% y/y in November. Euro bids are cited around the US$ 1.3885 level.
¥/ CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥90.90 level and was supported around the ¥88.95 level. As expected, Bank of Japan’s Policy Board kept the unsecured overnight call rate unchanged at 0.1%. The central bank reemphasized its commitment to stopping Japan’s deflationary pressures through policy actions. Some traders believe the central bank will eventually move to increase its rinban operations in which it outright purchases Japanese government bonds. The yen was given across the board on rampant speculation the central bank will take actions because it “does not tolerate a year-on-year rate of change in the consumer price index equal to or below zero per cent.” Aggressive action by the central bank – favoured by some in the Hatoyama administration – could lead to a weaker yen. The BoJ also indicated the economic improvement is likely to be moderate until 2010. The Nikkei 225 stock index lost 0.21% to close at ¥10,142.05. U.S. dollar offers are cited around the ¥94.75 level. The euro moved higher vis-à-vis the yen as the single currency tested bids around the ¥130.00 figure and was supported around the ¥127.30 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥146.55 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥86.90 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8330 in the over-the-counter market, down from CNY 6.8335. China reported it attracted US$ 7 billion in foreign direct investment in November. A People’s Bank of China household inflation survey reported many believe prices are escalating too quickly during the economic recovery. The State Administration of Foreign Exchange reiterated it will manage foreign reserves for “safety, liquidity, and return.”
₤
The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6050 level and was capped around the $1.6250 level. Bank of England reported the U.K. financial system is “significantly” more stable and noted U.K. banks plan to increase business lending in 2010 after net business lending fell in October. On the residential loan front, the central bank reported mortgages remain much weaker than before the credit crisis. Data released in the U.K. today saw Q3 business investment growth decelerate to +0.6% q/q and GfK December consumer confidence worsened to -19 from -17 in November. Additionally, CML November gross mortgage lending fell to a six-month low of ₤12.0 billion in November. Cable bids are cited around the US$ 1.5955 level. The euro moved higher vis-à-vis the British pound as cable tested offers around the ₤0.8955 level and was supported around the ₤0.8855 level.
