DAILY MARKET COMMENTARY
16 December 2011 – 8:00 GMT
Friday
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Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
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FUNDAMENTAL ANALYSIS at 0800 GMT
USD
The EUR has traded back above 1.30 amid tight ranges as activity winds down towards the holiday season. Nonetheless there still wasn't much reason to be cheerful - IMF Chairman Lagarde said that the global economic outlook is gloomy, and no region and country is immune. She said that all countries must take action to improve growth. Earlier, EURCHF fell 1 big-figure after the SNB offered no change in policy at today's meeting. The statement was largely a repeat of the September one and they do not appear to see the inflation outlook as having deteriorated enough to justify action at this point. The bottom of the outlook is now seen at -0.8% in Q1 compared to -0.5% in Q2.
For EURCHF, the situation is pretty much unchanged from before the statement: the threat of moving the floor higher at some point remains very much alive. Elsewhere risk appetite stabilised, the euro remains around the 1.30 level. Reuters cited EU diplomats as saying another EU summit is expected to be held Feb. 7-8 in Brussels. This could be the growth summit which has been mentioned in recent days, although further details were lacking. The US remains somewhat of a bright spot though, as yesterday's labour market figures showed jobless claims falling sharply to the lowest level in more than three years, to 366k. The current account deficit also shrank to below 3% of GDP, showing that US rebalancing is continuing. However, this implies weaker domestic consumption and with UK retail sales numbers also disappointing to the downside yesterday, emerging markets will struggle to find alternative growth sources and this will remain a drag on sentiment heading into the next year. EURUSD traded in a range of 1.3013-1.3044, USDJPY 77.80-77.91. Ahead today CPI is due in the US. Our economists note that the 0.1% decline in the overall CPI that we forecast for November (cons: +0.1%) reflects another fall in energy prices.
EUR
Reuters cited EU diplomats as saying another EU summit is expected to be held Feb. 7-8 in Brussels. This could be the growth summit which has been mentioned in recent days, although further details were lacking.
Yesterday's Spanish auction passed successfully. The Tesoro allotted around 6bn euros in total, well above the original target level. Our fixed income strategists note that this puts Spain's funding back in line with the 2011 target of EUR94 bn. This was Spain's last bond auction in 2011
Eurozone manufacturing PMI for December came in at 46.9, better than expectations for 46.0, and after 46.4 in November. The services sector PMI came in at 48.3, better than expectations for 47.0 and after 47.5 in November. The composite measure was 47.9, ahead of expectations for 46.5, and after 47.0 in November.
Late during the US session, Fitch downgraded five big European commercial banks by one notch each, pointing to 'stronger headwinds facing the banking industry as a whole'.
German Chancellor Angela Merkel spoke to the bundestag. She said that Europe has embarked on an irreversible process to fiscal union. She added that the UK is still an important partner in the EU despite refusing to back fiscal integration. She also said there are no quick, easy solutions to the crisis, which will last years.
IMF Chief Lagarde said that all countries must work together to resolve Europe's debt crisis. She said that it was important for countries to face the issues, and 'not being in denial'. She also called for patience to allow individual countries to allow the democratic process to run its course.
GBP
UK November retail sales fell to -0.4% m/m and +0.7% y/y, from October's revised +1.0% and +1.1% (preliminary +0.6% and +0.9%) and against forecasts for -0.3% and +0.4%. Clothing and footwear sales improved by 1.1% m/m but were still only 0.1% better on the year. Food sales were down 0.8% m/m and were down 0.6% on the year.
CHF
EURCHF fell 1 big-figure after the SNB offered no change in policy at today's meeting. The statement was largely a repeat of the September one and clearly they do not see the inflation outlook as having deteriorated enough to justify action at this point. The bottom of the outlook is now seen at -0.8% in Q1 compared to -0.5% in Q2. For EURCHF, the situation is pretty much unchanged from before the statement: the threat of moving the floor higher at some point remains very much alive
SNB Chairman Hildebrand said the central bank doesn't see any "sustained" drop in prices, but rather "temporarily negative" inflation rates. These comments explain why they did not take action. He blames deflation in October-November on import prices, but reiterates that the SNB stands ready to act if necessary "at any time".
A. White
Analyst at Fibosignals.com
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