Equity investors made for the exit door at the NY open, selling industries across the board, although chip makers Intel and Texas Instruments suffered larger falls on analyst downgrades. The S&P500 is currently down 1.6%, with similar losses recorded in Tokyo and Europe. US data, particularly the Philly Fed factory survey, was actually supportive, so the sell-off suggests fragile investor sentiment. Apart from oil (-2.4%), commodities are only slightly lower, and still near their cycle highs. The whole US treasuries curve shifted down by around 4bp, 2yr notes reaching 0.676%, only 7bp off the record low of 17 December 2008. Pimco, the world’s largest bond fund, said the risk of another asset bubble rose with the Fed’s reflation policies, and that a hike was unlikely until GDP grew 4-5%. The US dollar index rose around 0.4% to 75.40, but remains consolidative near its low, and requires a break above 76.82 to confirm a medium-term correction is unfolding. USD/JPY is only slightly softer, having dipped to 88.64. EUR fell from the Sydney close around 1.4910 to 1.4843, but rebounded in NY for no change. Other risk currencies fared worse, GBP dropping from 1.6700 to 1.6607. AUD fell from 0.9240 to 0.9132, recovering to 0.9183 during the last few hours. NZD was the underperformer of the evening, falling by 1.3% to 0.7273 before steadying at 0.7300. AUD/NZD resumed its upward trend which started on 6 October, and almost touched 1.2600. US Philadelphia Fed index rises from 12 to 17 in Nov. The Philly Fed headline looks (and is) strong, relative to where this particular regional factory survey has been (i.e. –41 in February this year), and the detail in the report was even more impressive. Compared to October: new orders growth jumped 9 pts; shipments rose 12 pts; jobs improved 6 pts to be almost flat after 20 months of contraction; but the six month outlook was a little less upbeat for the second month running. This report is consistent with the recent return to manufacturing expansion continuing, and perhaps accelerating again after October’s near flat industrial production report earlier this week. This contrasts with the NY Fed index released earlier this week which was softer in November. US leading index up 0.3% in Oct. The leading index posted its seventh consecutive monthly gain, despite largish drags from the consumer confidence and building permits components. Recent weakness in some indicators has certainly pulled back the pace at which the leading index is rising, but it is still indicating quite solid growth in prospect for 2010. US initial jobless claims steady at 505k. Initial jobless claims did not fall any further last week but continuing claims maintained a decent downtrend, adding weight to the view that the US job market improvement is ongoing. Almost 10% of all US mortgages now in default. Mortgage delinquencies and foreclosures continued to rise in Q3, the former seeming to accelerate somewhat, although it remains to be seen if that translates to sharply higher foreclosures. UK retail sales rose 0.4% in October, a little weaker than the 0.5% we expected, but September’s soft flat outcome was revised up to a 0.4% gain as well – which happened to be Westpac’s forecast at the time. The upward revision to September increases the possibility that we see a modest upward revision to Q3 GDP growth, reported at –0.4% in the advance report, though our forecast remains for no revision given soft IP and trade data for September (revised data due 25/11). The OECD published updated twice-yearly forecasts. The OECD group of industrial economies is forecast to growth 1.9% in 2010, up from a 0.7% forecast in June. Outlook AUD/USD and NZD/USD outlook today: Our proprietary risk aversion barometers are now warning of a correction in risk currencies, and with last night’s bearish price action in the face of decent US data, we will stay sidelined today. AUD has held above its multi-month rising trendline, but NZD looks more vulnerable.

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