The U.K. October money supply and public finances releases passed without too much variation from forecast. The actual money supply remains at high levels although the BOE tends to observe but no longer incorporates it as an active policy influence. Forecast Actual
M4 Money Supply (F) (MoM) +0.1% +0.2%
M4 Money Supply (F) (YoY) 11.8% 11.8%
M4 Sterling Lending (F) GBP 19.8bn 19.5bn
Net Consumer Credit GBP 1.1bn 1.4bn The U.K. November CBI Distributive Trades Report was more buoyant than expected seeing a rise in the headline index by 3 points to +13, boosted by strong retail sales. However, the quarterly business balance dropped 10 points to -1 to mark the lowest level in 12 months. Reported selling prices soared by 26 points to +42 and employment down 11 points to -15. The expectations component also eased by 4 points to +11 and this appears to be influenced by the sharp turndown in housing prices. While the headline increase looks positive there are sufficient elements in this report to feel concerned, specifically the cocktail of negative employment, higher prices and the lower expectations component. All eyes now on the BOE and their rate decision although with the CB offering emergency funds over the coming 5 weeks through the holiday period at 5.75% it should be sufficient to calm end-year financing issues into the New Year when a fresh assessment of conditions can be made. Indeed with Lomax pointing out the high degree of inflationary pressure it will be hard for the BOE to cut rates at this time.
Euro-zone - October Forecast Actual
Italian PPI (MoM) +0.4% +0.4%
Italian PPI (YoY) +3.6% +3.6%
Euro-zone November
French Consumer Confidence - 24.0 - 28
German Unemployment Change - 30K - 53K
German Unemployment Rate 8.7% 8.6% Prior Actual
Italian Bloomberg Retail PMI 48.0 45.3
French Bloomberg Retail PMI 47.3 48.8
German Bloomberg Retail PMI 48.6 43.6
Zone Bloomberg Retail PMI 48.0 45.9 Again Euro-zone numbers continued the recent trend of higher inflationary pressure and lower growth and confidence. The only exception to the numbers was the French retail PMI, probably still boosted by the tax cuts provided by Sarkozy. A mildly positive higher-then-expected cut in German unemployment was welcome but must be considered suspect when viewed against the recent trend in performance. With the employment market generally the last element to react to a slowdown it adds little optimism. The retail PMI numbers in general were very poor with quite a sizeable drop that solidifies the headline numbers well under the 50 boom-bust level. The German IFO was actually a lot brighter than expected so next week’s manufacturing PMI’s will be watched closely for confirmation of whether the IFO identified a brief pullback or whether the downtrend remains in European industry. The States added a few more releases in a much busier calendar. First the GDP revisions for Q3 came in as expected at +4.9% on an annualized basis, up from the prior reported +3.9%. Non-farm inventories was the bigger contributor together, then trade at and a mildly higher fixed investment contribution. Personal Consumption was revised lower to +2.7% (from 3.0%) and the deflator to +0.9% (from 0.8%.) The higher revision, while in line with forecasts, will echo emptily in the midst of the current U.S. bearish market but does actually show that in spite of the problems the economy has held up as best as can be expected given the drag caused by housing. Still, without doubt Q4 will be a lot worse but should still remain positive which will keep the odds on a recession at bay as we move into 2008. New Home Sales came in lower than expected in October at a 728K annualized pace. However, the route to this number was rather circular with September’s numbers revised substantially lower from the originally reported 770K down to 716K. This actually meant that October had a positive month of +1.7%. However, even here we have to take a rain check as every release since July has been revised lower. We can’t expect any good news for 5-6 months at least. Finally the weekly jobless claims data was a bit of a shocker rising to 352K from the previous week’s 329K but we do have to remember that this included the Thanksgiving holiday. The series normally makes a ‘blip” over a holiday period. Continuing Claims rose to 2670K and above the 2575K forecast. There is still a certain degree of nervousness over the numbers with the impact of the credit crisis and housing slump still being feared as a negative influence on employment plans.
And the Dollar moved higher… against Europe at least. One more step towards larger correction higher but still not confirmed. Again, more and more commentators are coming round to the view that has been expressed here that a year-end Dollar rally is likely, citing an overdone bearish sentiment and widespread short positions.
The Dollar low is almost certainly in place but the larger recovery may still be a few days away as even the turncoat Dollar bears still not quite confident of opposing the general bearish trend. Given the strength of the bearish mood over the past few months it does take time for the market to gather sufficient confidence to turn their heads in the opposite direction. What normally convinces the mob is a rapid loss of profit to make them scramble to get out. It could be quite bloody when it comes. We still have a long list of releases today at month end and frankly I still see a slight bias in favor of continued range trading for the next 2-3 trading days. However, by the end of next week with the threat of liquidity draining away there should be a much stronger Dollar recovery. The market will classify it as a correction within the overall Dollar downtrend so early next year should see a return to Dollar selling but I somehow suspect given the Dollar cycle lows that we shall witness now lows. Today has more risk of being volatile with the market now becoming more balanced with sellers taking advantage of what they perceive to be good selling levels versus those who want to stock up on Dollar dips to wait for the recovery. It may well mean marginal new Dollar highs but not excessively so but then a return into the range by the end of the day.
More later once the daily analysis has been done…
The following economic releases from Asia are due today:
Japan – October
Unemployment Rate 4.0%
Job-to-Applicant Ratio
Overall Household Spending (YoY) +1.0%
National CPI (YoY) +0.1%
National CPI Excl food & energy (YoY) - 0.2%
Housing Starts (YoY) -36.7%
Annualized Housing Starts (YoY) 834K
Construction Orders (YoY) Japan - November
Nomura/JMMA Manufacturing PMI
Tokyo CPI (YoY) +0.3%
Tokyo CPI Excl food & energy (YoY) +0.0% Australian Q3 Current Account Balance AUD 16.4bn
Australian October Private Sector Credit (MoM) +1.1% | 
