The US Dollar advanced despite of a sharp rally across Asian stock exchanges which would normally have been expected to weigh on the safety-linked currency. Australian lending and construction data pointed to a housing market collapse in the making in August. Swiss unemployment and the final revision of Euro Zone GDP are on tap ahead.
[U][B]Key Overnight Developments[/B][/U]
[B]• UK Consumer Confidence Rises to Highest in 17 Months, Says Nationwide
• Australian Construction, Lending Data Points to Housing Market Bubble
• US Dollar Rebounds, Ignoring Rising Stocks on Asian Exchanges[/B]
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Critical Levels[/B][/U]
The [B]Euro[/B] traded lower in overnight trading, slipping as much as -0.3% against the greenback. The [B]British Pound[/B] followed suit, losing its grip on the 1.59 level. Interestingly, the [B]US Dollar[/B] advanced in spite of a sharp rally across Asian stock exchanges which would normally have been expected to weigh on the safety-linked currency. We remain short GBPUSD at 1.6617 and EURUSD at 1.4710.
[U][B]Asia Session Highlights[/B][/U]
[B]UK Consumer Confidence[/B] rose for the sixth consecutive month to the highest level since April 2008 in September according to the Nationwide Building Society, a leading consumer lender. The forward-looking Expectations component gauging the survey respondents’ six-month outlook revealed that optimists outnumbered pessimists for the first time in close to six years. Nationwide’s head of economic and market analysis Mark Saddleton said widespread talk of recovery in the news media “may have helped to improve sentiment in September, which may have also been boosted by continued positive news about the housing market and the strong rally seen in the equity markets in recent months.” However, recent housing-market reports from Rightmove Plc and the Royal Institution of Chartered Surveyors (RICS) have suggested that much of the rebound in home values is accounted for by low supply rather than robust demand for real estate, while equities look vulnerable to (at least) a corrective reversal having rallied to a six-year high relative to earnings. It is unclear whether cheerleading from the media can successfully underpin confidence should the fragile foundations of the other two catalysts give way, but steadily rising unemployment (already at a 22-year high of 5% and set to approach 9% next year) looks likely to undermine sentiment in the months ahead.
In Australia, the value of [B]Home Loans[/B] to owner-occupiers fell for the second consecutive month in August, slipping -0.6%. The metric may continue to slide going forward as housing demand retreats after the government reduced a program offering a A$21,000 grant to first-time home buyers this month while the central bank unexpectedly raised borrowing costs and promised more rate hikes in the months ahead. Interestingly, the [B]Investment Lending[/B] gauge that tracks loans to buyers planning to rent or resell properties surged 7.6%, the most since April, while the [B]AiG Construction PMI[/B] report showed that the home-building industry expanded for the first time in 18 months. Booming supply feeding investment-driven buying in the face of rising borrowing costs are familiar ingredients, pointing to a housing bubble collapse in the making.
[U][B]
Euro Session: What to Expect[/B][/U]
Switzerland’s seasonally adjusted [B]Unemployment Rate[/B] is set to rise to 4.1% in September, the highest in over 10 years, pointing to mounting headwinds for consumer spending and thereby overall economic growth. In fact, the jobless rate may actually be understating the total impact of the current downturn on consumers’ spending power as many firms looked to cut costs by switching a portion of the workforce to a “short-time” schedule, which amounts to fewer hours and thereby smaller paychecks. Naturally, this trims disposable incomes and adds to already formidable disincentives to consume. Although exports are heavily represented as a component of Swiss economic growth, domestic demand is still by far the most important driver of activity, contributing about 60% to total output. The government has forecast that the economy will shrink -2.2% this year and rebound just 0.1% in 2010.
The final revision of [B]Euro Zone Gross Domestic Product[/B] is set to confirm that the economy shrank at an annual pace of -4.7% in the second quarter. No revision are expected in the component metrics of the report, so any deviation in the Consumption and Fixed Capital investment components may produce volatility as traders gauge the ability of private demand to take up the baton in driving growth after the flow of government cash dries up.
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