Action Insight Daily Report
Dollar and Yen to Resume Rally Cautiously, Focus on Services Data
While dollar and yen retreats mildly from this week's high as stocks recovered, the pullback is so far mild and doesn't change the near term bullish outlook. Focus will turn to services data from Eurozone, UK and US today as well as some preview reports for Friday's Non-Farm Payroll. The data are expected to continue to show deterioration in the global economy and may probably trigger some more risk aversion trades to give dollar and yen a boost. Though, the impact could be mild and short lived as traders will likely hold their serious bet until key events risks of ECB and BoE rate decisions on Thursday as well as Non-Farm Payroll on Friday.
UK's Nationwide Consumer Confidence Index fell to 50 (consensus: 50, October: 56), the lowest level since the survey began in May 2004. Increase in unemployment and concerns about recession were the main reasons for the decline. Later today, UK will report services PMI in November which should fall to 41.2 from 42.4 in October. Finalized services PMI will be released in the Eurozone and is expected came in at 43. October retail sales in eurozone should have come down further to -0.4% from 0.2% in September due to greater deterioration in private consumption.
From US, November ISM non-manufacturing Index is likely to sink from 44 to 42.5, hitting a record low in 11 years. Price paid component will likely continue the fall from Jun's peak of 84.5 and drop further from Oct's 53.4. Employment component will likely deteriorate further from Oct's 41.5, showing deeper contraction.
A bunch of employment data will be out in US session today. The ADP national employment report will probably show- 200k private sector jobs lost in November, after a 157k decline in October. The ADP payroll data tracks employment in goods-producing sector more correctly than in service-producing sector, whose growth has often been overestimated. Therefore, one should focus more on the goods-producing sector for predicting Friday's non-farm payroll report. Q3 productivity growth is expected to be revised down to 0.9% QoQ from 1.1% in the preliminary report while labor costs should remain unchanged at 3.6%. Challenger planed job cuts will also be released.
To be released at 1900GMT, Fed's Beige Book will be based on conditions from the second week of October through November 24. During the period, economy have worsened substantially and this latest report is expected to be more bearish than the previous one which already indicated every region of the US was in recession and consumer spending, manufacturing and service sectors were contracting.
Released in Asia, Australia's 3Q GDP increased 0.1% from Q2, lower than 0.2% as market expected, showing the economy is in its weakest growth in 8 years. On annualized basis, growth was 1.9% (2Q: 2.9). Moreover, the2Q quarterly data was revised up to 0.4% from 0.3%. In seasonally adjusted terms, the main contributing factors to the increase in expenditure on GDP were engineering construction investment (+0.4%) and public gross fixed capital formation (+0.2%), while the biggest negative factors were imports (-0.4), ownership transfer costs (-0.2%) and new building (-0.1%).
