Greenback takes a breather

Preliminary jobless claims fell yet again as had been
expected and the 4-week average result sustained in its downtrend. The
Philadelphia Fed manufacturing survey rose above consensus predictions, which
indicates that the ongoing increase in activity is occurring at a faster rate
than economists are predicting. On the less positive side, housing starts were
up, though not as high as anticipated, and building permits came in weaker. The
US Congress though, gave final approval to extending the expiring Bush-era tax
cuts. On the whole, news and data were deemed good news for equities and US
indices advanced and the Dollar came off. Markets were relatively quiet in
Asian trading with no noteworthy news or data.

All focus now shifts to Europe
and more specifically the 2nd day of the EU leaders summit. Given that the
first day yielded few surprises, expectations are not high that anything
concrete will emerge. A general round of Eurozone/Euro supportive comments
seems likely but with anything more tangible requiring amendments to the
existing Treaty which in turn would require national referendums (no government
is in a secure enough political position to risk incurring their people’s
wrath), the status quo looks likely to be maintained. Spain managed to get their 10 and 15-year bond
offerings away yesterday but at a greatly increased cost and this morning we
have seen Moody’s play catch up with the other two ratings agencies by
downgrading Ireland having
placed Greece and Belgium’s ratings
under review. With the ECB having finally concluded their capital increase to
ensure their ability to raise lots of money quickly, news from the peripheral
states is unlikely to improve over the coming weeks. Having said that, Ireland
did report a positive 3rd Quarter GDP figure yesterday at +0.5% with a strong
export performance countering weak domestic demand. GNP, which is seen by some
economists as a more accurate indicator of the state of the economy, jumped 1.1
%, beating expectations for a 0.2 % increase.

Today’s data calendar is already old news with the UK’s
Nationwide consumer confidence figure reported at 45 versus 52 in October, down
to a 21-month low (which knocked Sterling a tad lower across the board) and the
German IFO survey result also out, with numbers slightly better all round – no
effect on the Euro exchange rate so far. All that’s left is the US leading
indicators number this afternoon – a largely forgotten piece of data and
unlikely to cause a ripple in the pre-weekend market.

Report by Philip Ryan