Expert Analysis of Today's Market

• The dollar was little changed on Monday. Sterling gained against most key currencies. The Canadian and Australian dollars pared gains as US stocks fell in NY late afternoon trading. Manufacturing in New York contracted in November at the fastest rate on record, adding to the evidence the US economy is in a prolonged recession.


• The USD/JPY dropped as risk appetite rose and US stocks fell. The pair tested the downtrend again but failed to penetrate it. The US stock market, highly correlated with the USD/JPY, is at important support. If stocks fail to find a bottom, the pair will fall further. Supports exist at the 95 and 92 areas. The penetration of the USD/JPY downtrend would be bullish.

Financial and Economic News and Comments

US & Canada

• US industrial production rose a more-than-expected 1.3% m/m in October, after declining a downwardly revised 3.7% m/m in September, the largest drop since February 1946, Federal Reserve data showed. The October IP fell 4.1% y/y. Capacity utilization increased to 76.4% in October, following September’s downwardly revised 75.5%. The 1972-2007 average is 81.0%. Manufacturing production was up 0.6% m/m in October despite a 3.5% m/m decline in motor vehicle and parts production, following September’s 3.7% m/m decline. Manufacturing capacity utilization increased to 73.8% from 73.5%.


• The 1.3% m/m partial rebound in October’s IP was not enough to make up for September’s biggest plunge. The IP would have fallen 0.7% m/m in September and 0.6% m/m in October after excluding the effect of Hurricanes Gustav and Ike and a Boeing Co. strike.

• Manufacturing in New York contracted at the fastest rate in November, with the NY Fed general business condition index declining to -25.43, the lowest since records began in 2001, from October’s -24.6, the Federal Reserve Bank of New York said. The new orders index fell to -22.2 from October’s -20.5. The shipments index dropped to -13.9 from -8. The employment index plunged to -28.92, the lowest level since December 2001, from -3.7.

• According to the Federal Reserve Bank of Philadelphia survey, the US economy is in a recession, the recession began in April 2008 and it is expected to last 14 months. “The forecasters predict that the U.S. economy is headed for a couple of rough quarters,” the Philadelphia survey read. The survey expects the real GDP to contract at an annual rate of 2.9% in Q4 2008 and 1.1% in Q1 2009. The survey expects growth to resume at 0.8% in Q2 2009, 0.9% in Q3 2009 and 2.3% in Q4 2009. The stimulus package will add 0.6% to the average year-over-year real GDP in 2009 and 0.4% in 2010, according to the survey.

Europe

• The eurozone trade deficit was €5.7 billion in seasonally adjusted terms in September, unchanged from August’s revised deficit, Eurostat reported. Seasonally adjusted exports rose 2.2% m/m and imports rose 2.1% m/m in September.

Asia-Pacific

• The Japanese economy has entered its first recession since 2001 with GDP contracting an annualized 0.4% in Q3 2008 after a downwardly revised 3.7% contraction in Q2, the Cabinet Office said. The economy shrank 0.1% q/q in Q3 after a downwardly revised 0.9% q/q contraction in Q2. Capital spending declined 1.7% q/q in Q3. The figures suggest economic conditions will likely worsen.

• Australia’s retail sales excluding inflation increased a less-than-expected 0.1% q/q in Q3 after an upwardly revised 0.2% q/q decline in Q2, data from the Bureau of Statistics showed. The data reinforces the Reserve Bank of Australia’s decision of most aggressive round of interest-rate cuts since 1991.

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