[B]Talking Points
• Yen: Back above 113.00 as global equities turn green
• Pound: Better Retail Sales stave off run at 1.9800
• Euro: Hotter Import prices but weaker consumer spending offset each other
• US Dollar: PCE and Personal Income on tap[/B]
A listless night of trade as the FX dealing world is quietly wrapping up business for 2007. Next week with Japan closed for Monday and Europe and North America closed for Christmas trading is likely to remain moribund. Unlike the past few years when low liquidity conditions often resulted in massive volatility, this year most of the position squaring has been done and unless we get some unexpected geo-political or financial in the next two weeks it looks like range, range, range for the rest of 2007.
On the economic front EZ data managed to offset itself with German Import prices rising more than expected giving further credence to ECB’s argument that price pressures are mounting. On the other hand, French consumer spending dropped much sharper than forecast declining –0.1% versus consensus calls of a 0.6% gain. The news once again underscores the dichotomy between ECB’s tough talk and the reality of lackluster EZ consumer demand which is almost certain to keep Mr. Trichet and company on the sidelines at least through the first month of 2008.
In UK Retail Sales printed better than expected rising 0.4% vs. 0.2% forecast on a month over month basis. The news helped to stave off a run at the 1.9800 level and may have marked a temporary bottom in the pound if not against the greenback per sei then certainly on the crosses.
Cable has been the weakest performer amongst the majors this week beaten down by relentlessly dour UK economic news. Therefore, today’s upside surprise came as welcome news to pound longs suggesting that the UK consumer spending remains relatively healthy and may not require immediate monetary easing from BoE next month.
In US today the focus will also be on the consumer as Personal Income and Personal Spending data will be released at 13:30 GMT. The market expects spending to exceed income by 0.1% and should that be the case the greenback could see some turbulence as the data will show further deterioration of the consumer balance sheet. However, if income and spending match, the news could give the buck a boost indicating that for the time being US consumer is generating enough cash flow to meet his obligations. One other item of note will be the PCE data for November. A hotter number may offset any weakness from the spending data as it will make it more difficult for Fed to cut in January in light of growing evidence of rising inflation.
I will be gone for rest of the year, but Market Brief will be published daily. Wishing all of our clients the very best of holidays and happy, healthy and prosperous 2008.
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