Risk appetite again improved, pushing the S&P500 1.7% higher as we write, to a 13 month high. The main factors at play were the APEC meeting’s pledge to maintain stimulus measures, and an improved retail sales report meeting expectations. Supporting risk late in the session, Fed Chairman Bernanke spoke in NY, and reiterated the “low interest rates for an extended period” expectation, citing constrained credit conditions and a weak labour market. Among other US data releases, the Empire Manufacturing index disappointed expectations, boosting US treasuries – the 10yr rallied by 7bp. Commodities were stronger, gold making a fresh high at $1141, silver standing out at +5.3%, and oil rising 3.6%.
The US dollar weakened throughout the evening, Bernanke’s comment the Fed will keep the dollar strong only briefly interrupting the decline. EUR rallied during the London morning to 1.4994, before running out of steam near the close, dropping a cent on Bernanke’s comment, and recovering fully to 1.4970. GBP initially dipped to 1.6680 before strengthening throughout the session to 1.6820. JPY gained overall to 89.05 against the dollar, yesterday’s consensus beating GDP report lingering.
AUD initially dipped to 0.9320 in London but then ground to a fresh 2009 at 0.9382, notwithstanding the Bernanke blip.
NZD hovered for much of the London session around 0.7435 before pushing higher to 0.7490. AUD/NZD stepped lower to 1.2525.
Fed Chairman Bernanke said that they are closely monitoring developments in the US dollar, and highlighted the Fed’s dual mandate of maximum employment and price stability – a hint that the sliding USD may be generating concerns about the latter. Dallas Fed chief Fisher echoed these comments, though he emphasised that the USD’s depreciation has been gradual.
The NY Fed index headline fell by just over 11 pts to 23.5 in Nov and much of the detail was even softer, including a 14 pts drop in orders and 22 pts slump in shipments. The jobs measure fell about 9 pts. However the headline, shipments and jobs indices did not fully reverse their very steep Oct jumps; and although orders did, at 16.7 it remains healthy. So the Nov NY Fed survey should really be seen as a correction from its five year high in October to still solid levels, consistent with an ongoing industrial (and indeed broader economic) expansion in the fourth quarter.
US retail sales bounced 1.4% in Oct, buoyed by the fairly abrupt recovery in new car sales after September’s post cash-for-clunkers “hangover”. For once, gasoline prices do not seem to have been a factor driving sales values. Excluding those two factors, core retail sales posted another 0.3% rise, their third consecutive gain, only modest in the month but helping to set up a positive start to consumer spending growth in the fourth quarter.
US business inventories fall 0.4% in Sep. The new information in the business inventories report was a 0.6% rise in retail stocks due mainly to a 3.8% jump in the auto dealer component. The slower pace of total business inventory rundown at the end of Q3 will provide some offset to the weaker net export performance, that we expect to be incorporated in the Q3 GDP revisions next week.
Japanese Q3 GDP firmer than anticipated at 1.2%qtr, 4.8%saar. The upside surprise was driven primarily by a huge turnaround in non-residential investment (+0.8ppt) and private inventories (+1.1ppt).
Euroland CPI was unrevised at –0.1% yr in Oct; the core rate was steady at 1.2% yr.
UK house prices update. Despite falling this month, UK asking house prices as measured by the Rightmove estate agent network were a little higher than a year ago for the second month running. This is one of more than half a dozen UK house price measures but all are saying essentially the same thing – prices have bottomed out after tumbling steeply last year and earlier in 2009.
Canadian manufacturers’ sales rose 1.4% in Sep, largely reflecting gains in the auto industry.
