More correlation breakdown as the dollar rises even as Wall St approaches 2009 highs


MAJOR HEADLINES – PREVIOUS SESSION

  • CA Oct. Retail Sales out at +0.8% m/m, as expected, vs. revised +1.1% prior

  • CA Oct. Retail Sales ex-Autos out at +0.2% m/m vs. +0.3% expected and revised +1.0% prior  

  • US Nov. Chicago Fed Nat’l Activity Index out at -0.32 vs. revised -1.02 prior

  • NZ Q3 C/a Balance out at –NZ$1.413b vs. –NZ$2.03b vs. revised +NZ$0.367b prior

  • AU Oct. Conference Board Leading Index out at -0.3% vs. revised flat reading prior

  • JP Nov. Supermarket Sales out at -8.0% y/y vs. -5.2% prior

  • JP Dec. Small Business Confidence out at 40.4 vs. 43.0 prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • GE GfK Consumer Confidence (0700)

  • JP BOJ Gov. Shirakawa to speak (0700)

  • Swiss Trade Balance (0715)

  • Sweden Manufacturing/Consumer Confidence (0815)

  • Sweden PPI (0830)

  • UK GDP (0930)

  • UK Current Account Balance (0930)

  • US GDP Revision (1330)

  • US Personal Consumption (1330)

  • US Richmond Fed Index (1500)

  • US House Price Index (1500)

  • US Existing Home Sales (1500)

Market Comments:

Firmer US yields gave the greenback another lift during the US session yesterday, despite a solid rally on Wall St near to the year’s highs implying a further breakdown in the correlation between a firmer dollar and risk appetite – at least for now. GBP had a look closer to the key 1.60 level as talk emerged that Goldmans was threatening to relocate a considerable part of its staff from London to Spain. USDJPY has managed to breech the 91.0 mark despite a constant supply of dollars from exporters into the rally. EURCHF was spooked into a rally back towards 1.50 amid chatter of central bank bids, though not confirmed. CAD was another big mover overnight, buoyed by another strong retail sales number in Oct (+0.8% m/m, as expected) and M&A news.

In overnight news, the latest UK poll gave the Conservative party a 17 point lead over Labour which by implication would give them a 100 seat majority at the next election. This is a vast improvement from the 6 point lead in the last poll mid-November and is attributed to a sharp fall in optimism over the economy following the pre-budget report which was heavily panned in the press. The fact that a hung parliament may be less likely should benefit GBP in the long run but GBP still looks a touch heavy in the face of the rising dollar in the meantime.

Ratings agency Standard and Poor’s raised its outlook on Russia’s debt ratings to stable from negative citing lower than expected budget deficits as a result of firmer oil prices and cuts in state expenditure. The timing is particularly favourable to Russia given its intention to return to debt markets after a decade’s absence with an issue of up to $18 bln in Eurobonds in 2010. The agency affirmed its BBB foreign currency rating.

Dubai World was back in the headlines as bankers representing more than 90 lenders gathered in Dubai to hear the initial presentation from the restructuring team. There was no formal proposal for a standstill of the beleaguered company’s debts and chatter suggests that there will be little chance of a quick resolution/settlement.

The Asian session was a relatively quiet affair, predictable given the season and the Tokyo holiday tomorrow. We saw further JPY weakness across the board – an extension of the prevailing trend – though not aggressively so.

The European session is a touch busier with German consumer confidence kicking off the session. This is followed by Swiss trade numbers, Sweden confidence and PPI, UK GDP and current account data.

The US session also features the final look at Q3 GDP, general consensus shows no significant change to the pace of q/q growth (2.8%) or its composition. Next come existing home sales, Richmond Fed Index and FHFA housing price data all at once. Home re-sales seen rising to 6.25 mln unit pace, based on better trend in pending home sales data, approaching levels last seen in early 2007. However, there is the risk that some of the activity in the sector has been due to foreclosures and related short/auction sales. In addition the effect of tax incentive activity will continue to wane. There are no Fed speakers scheduled until early next year but in Washington efforts to get health care legislation to a final vote are underway, and seem likely to run through Christmas Eve. Note the bill passed a crucial test last night and this was a positive for the healthcare sector on Wall St.