German IFO best reading since reunification
UK GDP in line but consumption weaker
Nikkei of .84% Europe flat on open
Oil $81.67/bbl last
Gold $1376/oz.
Overnight Eco
AUD CB Leading Index m/m -0.1% vs. 0.2%
AUD Construction Work Done q/q -2.1% vs. 2.3%
EUR German Ifo Business Climate 109.3 vs. 107.6
EUR Italian Retail Sales m/m-0.2% vs. 0.3%
EUR Industrial New Orders m/m -3.8% vs. -2.6%
GBP Prelim Business Investment q/q -0.2% vs. 0.6%
GBP Index of Services 3m/3m 0.6% vs. 0.5%
GBP Revised GDP q/q 0.8% vs. 0.8%
Event Risk on Tap
USD Core Durable Goods Orders m/m expected at
USD Unemployment Claims expected at
USD Core PCE Price Index m/m expected at
USD Durable Goods Orders m/m expected at
USD Personal Spending m/m expected at
USD Personal Income m/m expected at
USD New Home Sales expected at
USD HPI m/m expected at
Price Action
USD/JPY recovers to 83.30 after testing 83.00 again
AUD/USD remains weak on risk selloff at .9760
GBP/USD drops to 1.5850 after GDP shows decline in consumption
EUR/USD test 1.3300 on sov. debt concerns but IFO helps cushion fall
@import url(/css/cuteeditor.css); The EUR/USD came under fresh selling assault from the shorts as widening spreads on periphery credits and more dour rhetoric from German Chancellor Angela Merkel overshadowed better than expected IFO data. The EUR/USD tumbled below the 1.3300 figure in early morning European trade hitting a fresh two month low before finally finding some support.
Despite the bailout of Ireland, credit markets remained nervous fearing that the sovereign debt contagion could spread to the Iberian peninsula with Portugal and Spain becoming the next targets. Spain which is the fourth largest economy in Europe would present a particularly difficult challenge for the monetary union. However, as several analysts pointed out more than 50% of Spanish debt is domestically owned and is therefore considerably more stable than the sovereign credits of the smaller European economies. Nevertheless the euro continues to see speculative assaults on the credits of the periphery economies and until the price action in the bond markets stabilizes the pair remains under heavy downward pressure.
On the economic front however, the news was considerably more positive as the IFO report printed much stronger than expected at 109.3 versus 107.6 eyed as it reached levels not seen since German reunification. The current conditions component also rose to 112.3 from 110.3 eyed. The eco data continues to impress as German business activity maintains momentum into the year end. The IFO report bodes well for German GDP growth in Q4 and confirms the stronger than expected PMI readings yesterday. As we noted earlier, "the stronger economic data may act as a cushion for EUR/USD for the rest of the day as better German data should offer market some solace that German growth will be able to finance any peripheral debt issues for the foreseeable future."
In UK the GDP data printed in line at 0.8% projected which was seen as sign of relief given the fact that many market analysts expected a downgrade due to the volatile construction sector. However private consumption weakened to 0.3% from 0.6% forecast suggesting that the budget austerity measures are having a negative impact on spending. Cable drifted below 1.5750 in the wake of the report.
In North America today the eco calendar is busy ahead of the holiday weekend with Durable Goods weekly jobless claims and personal income/spending all on the docket. The data is generally expected to be show a rise from the period prior and should therefore be supportive for the dollar versus the yen. Yesterday, the worries over European contagion overwhelmed the strong GDP revision as risk aversion flow dominated. However if the market stabilize today and the data meets o r beats expectations we could see a relief rally in risk as US traders head for Thanksgiving.
