Week ending 17 October 2008

Although credit markets began thawing, there is no suggestion of normalcy and economic growth continues to stall worldwide. Currencies consolidated within new levels and volatility remains high.

The Westpac-MI leading index for August fell −0.1% with annual growth slowing to 2.5%, below trend of 4.0%, and the September NAB business confidence measure held at multi-year lows at −8. Export prices in 3Q2008 rose a record 13.8% and import prices an unexpected 5.0%. AUD/USD consolidated between 0.6500 and 0.7200, closing the week at 0.6890 with high volume and no trend.

US September PPI printed at −0.4% m/m and the annual rate fell to 8.7% from 9.6%; CPI measured flat for the month and 4.9% y/y, with core CPI rising merely 0.1% m/m. Mortgage applications rose 5.1% for the week ended 10 October although housing starts fell to the lowest level in 26 years, while September retail sales dropped −1.2% and sales ex-autos −0.6%. The October New York (Empire) manufacturing index fell to −24.6, the Philadelphia to −37.5, and September industrial production by −2.8%.

The Eurozone September CPI rose 0.2% m/m and the annual reading held at 3.6% with core at 1.9%. Industrial production is down −0.7% y/y and the Eurozone ZEW survey of economic sentiment collapsed in October to −62.7. EUR/USD has strong resistance at 1.3770, respected for two weeks to date, closing at 1.3403 with a slight downtrend to the week.

Inflation in the UK remains high, with September PPI input at 24.5% y/y, PPI output at 8.5%, CPI at 5.2% y/y, and core CPI at 2.2%. The unemployment rate rose for eight consecutive months and in August hit 5.7% while average earnings fell slightly and wage costs rose slightly. EUR/GBP fell from its recent spike to 0.8070 and consolidated between 0.7740 and 0.7840, while GBP/USD found resistance at 1.7640 to close the week at 1.7303.

The BoC meets 21 October and although there is no general consensus the possibility exists for further rate cuts; remember the BoC joined in the coordinated international monetary easing earlier this month. In a light data week, Canadian August motor vehicle sales declined −2.3% m/m and manufacturing shipments −3.7% after rising 2.7% in July. USD/CAD consolidated between 1.1325 and resistance at 1.2000, while AUD/CAD entered a bullish regression channel 9 October, best seen on four-hour charts, closing the week at 0.8178.

The RBNZ meets 23 October and is widely expected to slash interest rates by as much as 100bps although a smaller cut is also possible. August retail sales rose 0.4% m/m and sales ex-autos rose 0.8%, and September manufacturing PMI rose to 47 from 45.7. NZD/USD consolidated between 0.5900 and 0.6300, AUD/NZD between 1.0900 and 1.1450, neither with any real trend.

Japan’s annual current account surplus narrowed by −52.5% to ¥988.8Bn, with the August trade balance registering a deficit of ¥236.0Bn m/m. August industrial production fell −3.5% m/m and −6.9% y/y, with capacity utilization declining −3.5% m/m. Condominium sales in Tokyo are off −53.3% from this time last year. USD/JPY, EUR/JPY, and AUD/JPY all appear to be forming pennants although whether continuation or reversal is anybody’s guess, with USD/JPY closing the week at 101.43, EUR/JPY at 135.96, and AUD/JPY at 69.90.

The Swiss ZEW survey of investor sentiment fell to a record −91.1 in October from −44.4 in September. USD/CHF traded flat for the week, mainly between 1.1300 and 1.1400, while EUR/CHF is also forming a pennant with possible bearish potential.