ECB Expect to Cut as Price Pressures Alleviate

Written by David Song, Currency Analyst
Friday, 14 November 2008 11:00:14 GMT

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Fundamental Headlines

1. Citi to Cut More Jobs, Raise Rates on Its Plastic – Wall Street Journal
2. Chances Are Slim for Stimulus, Auto Aid Till '09 – Wall Street Journal
3. New wave of CDOs at risk of default – Financial Times
4. Nomura Said to Plan Job Cuts Among Ex-Lehman Staff – Bloomberg
5. Shareholders Pay Price as Barclays, UniCredit Raise Capital Like "Casinos" – Bloomberg
6. Sun Microsystems Plan To Cut Jobs - RTTNews
   

EURUSD – The Euro-Zone is facing its first recession in 15 years as the advanced GDP reading for the third quarter showed that the economy contracted another 0.2% from the previous quarter.

1. Germany, the largest economy in Europe, fell into a recession for the first time since 1996.
2. Italy, the third largest economy in the Euro-Zone, is facing the worst recession since 1992.
3. Fears of a deep and prolong recession may lead the European Central Bank to lower the benchmark interest further as growth prospects deteriorate, and may continue to ease policy well into the next year as price pressures alleviate.
4. The headline inflation reading for the Euro-Zone fell to 3.2% from 3.6% in September as food and energy costs continue to pullback from their record highs.
5. Prices pressures in Germany cooled for the third consecutive month in October as the final CPI reading showed that the headline reading slipped to 2.5% from 3.0% in September.
6. Falling commodity prices paired with the drastic slowdown in the economy has certainly helped to lower inflation, which should allow the European Central Bank to hold a dovish outlook over the near-term. As price pressures weaken further, the ECB may cut borrowing costs well into the next year in order to avoid a severe recession.
7. Meanwhile, Credit Suisse overnight index swaps are showing that investors expect the central bank to the interest rate by at least 100bp over the next 12 months, which could drag on the euro going forward.

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Source :
1.ECB Expect to Cut as Price Pressures Alleviate, Friday, 14 November 2008 11:00:14 GMT.

Weekly Jobless Claims Jump To Seven-Year High

First-time claims for unemployment benefits showed a substantial increase in the week ended November 8th, according to a report released by the Labor Department on Thursday, with the increase lifting jobless claims to their highest level in over seven years.

The report showed that jobless claims rose to 516,000 from the previous week's revised figure of 484,000. Economists had expected jobless claims to come in nearly unchanged compared to the 481,000 originally reported for the previous week.

With the increase, jobless claims rose to their highest level since the weeks following the September 11th attacks. In the week ended September 29, 2001 jobless claims totaled 517,000.

The Labor Department also said that the less volatile four-week moving average rose to 491,000 from the previous week's revised average of 477,750. The increase lifted the four-week moving average to its highest level in over seventeen years.

Last Friday, the Labor Department released a separate report showing that employment fell for the tenth consecutive month in October, driving the unemployment rate up to its highest level in over fourteen years.

The report showed that non-farm payroll employment fell by 240,000 jobs in October following a revised decrease of 284,000 jobs in September. Economists had expected a drop of about 200,000 jobs compared to the decrease of 159,000 jobs originally reported for the previous month.

Continued job losses in manufacturing, construction, and several service-providing industries contributed to the bigger than expected decrease in employment.

The Labor Department also said that the unemployment rate jumped to 6.5 percent in October from an unrevised 6.1 percent in the previous month. With the increase, the unemployment rate came in above estimates of 6.3 percent and rose to its highest level since March of 1994.

With October marking the first month of the fourth quarter, the steep drop in jobs is likely to add to expectations a continued contraction in GDP during the quarter following a modest 0.3 percent contraction in the third quarter.

A recession is technically defined as two consecutive quarters of negative growth.


Related Post :
1. Worried About Your Job, What Sector a Risk?

Source :
1. RTTNews : Weekly Jobless Claims Jump To Seven-Year High, 11/13/2008 9:12 AM ET.

U.S. Trade Deficit To $56.5 Bln In Sept 08

Thursday morning, the Department of Commerce released its report on U.S. international trade in goods and services in the month of September, showing that the U.S. trade deficit narrowed by a little more than economists had been expecting.

The report showed that the trade deficit narrowed to $56.5 billion in September from $59.1 billion in August. Economists had been expecting the trade deficit to narrow to $57.0 billion.


Source :
1. U.S. Trade Deficit Narrows To $56.5 Bln In September, 11/13/2008 8:44 AM ET.

Dollar Rockets To New 6-Year High Versus Sterling

The dollar hit a fresh 6-year high versus the sterling and held its ground against other major currencies Wednesday morning in New York.

Traders reacted to indications that the Bank of England will further cut interest rates in a desperate effort to stem the tide of economic weakness.

On November 6, the UK central bank reduced the bank rate by a bigger-than-expected 1.5 percentage points to 3% in a bid to alleviate the mounting pressures on economy.

Wednesday, the Bank of England Governor Mervyn King said the Monetary Policy Committee is certainly prepared to cut interest rates gain if necessary. The BOE issued a the downward
revision to the inflation outlook in its quarterly report on inflation, cementing expectations for more rate cuts.

The dollar surged to 1.5200 versus the sterling, reaching its highest level since 2002. The buck has been rising steadily against the sterling for the past few months as traders flocked to the safety of the lower-yielding currencies.

Against the euro, the dollar was steady near 1.2500, hanging around yesterday's 2-week high of 1.2475. Back on October 27, the buck hit a 2 1/2-year peak of 1.2328.

The dollar continued to see very little movement versus the yen, staying near 97 Wednesday morning. The buck has stabilized since hitting a 13-year low of 90.88 a few weeks ago.

Demand concerns have kept the price of oil below $59 a barrel in electronic dealing, giving the buck a bit of a boost versus its petro-linked Canadian counterpart. The dollar hit a 12 -day high of 1.2125 versus the loonie, extending last week's modest gains.

Treasury Secretary Henry Paulson will speak Wednesday morning on the $700 billion financial bailout program. Democrats in Congress are ratcheting up the pressure on the Bush Administration to provide emergency assistance to the ailing American auto industry.

Related Post :
1. BOE Prepared to Cut Rate

Source :
1. Dollar Rockets To New 6-Year High Versus Sterling Wednesday morning,11/12/2008 8:02 AM ET.

Oil Prices Surge Above $64

Crude oil surged on Monday morning as the Chinese bailout plan may help struggling energy demand. Light sweet crude for December delivery moved to $64.13, up $3.09 for the session. Oil reached as high as $65.56 in electronic trading.

In an effort to battle the global economic crisis, China has unveiled ten major steps, the Beijing-based State Council said Sunday. The fourth-largest economy said it would relax its credit conditions, reduce taxes and plans a stimulus package amounting to about 4 trillion yuan or nearly $570 billion.

The dollar also saw modest weakness against other major currencies, which added to oil's hedge appeal. The dollar traded near 1.2900 against the euro, compared to a 2-year high of 1.2328 reached late last month.

Oil closed slightly higher on Friday but still lost more than 10% on the week. Oil hit as low as $59.97 late Thursday night, its lowest mark in 19 months.

Crude has lost more than 40% over the last 1 1/2 months amid ongoing demand worries caused by the global financial crisis. Oil has lost more than 55% from its record $147.27 reached in July.

At the pump, prices have continued to head lower. According to AAA's daily fuel gauge report, a regular gallon of gasoline fell to $2.24, down from $2.259 on Friday. A month ago, prices were at $3.291 and a year-ago gasoline averaged $3.10.

In other energy trading, natural gas added 48.3 cents to $7.24 per million British thermal units. Heating oil climbed to $2.0656, up 8.7 cents and RBOB gasoline added 5.66 cents to $1.4061.

In metals, gold surged $20.50 to $754.70 an ounce. Silver climbed 39.7 cents to $10.36 an ounce while copper added 13.75 cents to $1.8345 per pound.


Source :
1. Oil Prices Surge Above $64 11/10/2008 10:07 AM ET