• The dollar traded mixed on Tuesday, lower against the yen but higher versus the commodity currencies. The Federal Open Market Committee upgraded its forecasts for US economic growth but predicted a soft recovery would keep inflation muted, according to the November 3-4 Fed minutes released today. The minutes also showed that some FOMC members worried that the easy monetary stance could lead to excessive risk-taking and rising inflation expectations, which in turn could lead to new asset bubbles and a sharp USD drop. US Q3 GDP was revised lower, consumer sentiment unexpectedly rose and house prices showed sustained improvement. The S&P 500 declined 0.59 to 1,105.65. The euro was little changed. German business confidence and eurozone industrial new orders rose more than expected. The GBP/USD was lower but unable to break the 1.65 support. The Australian and Canadian dollars were pressured by lower commodity prices.
• The USD/JPY fell to the lowest level since October. The pair is approaching the 88 handle support. If this is broken, there is strong support at the 87 handle. Either way, it looks like the USD/JPY is forming a double bottom. A break of the long-term downtrend would be a bullish signal.

Financial and Economic News and Comments

US & Canada

• US GDP rose at a 2.8% annualized rate in Q3 2009, revised down from a previous estimate of 3.5%, the Commerce Department said. The downward revision was due to small revisions to net exports, personal consumption, and commercial construction. Government spending was revised up slightly. The largest positive contributions to Q3 GDP growth were personal consumption, inventories, and government, while the weakest components were international trade and commercial construction. The GDP price index grew at a 0.5% annualized rate, revised down from a prior estimate of 0.8%. Personal consumption increased at a 2.9% rate in Q3 after a 0.9% decline in Q2. Core PCE grew at a 1.3% annualized pace, following Q2’s 2.0% rate.

• US house prices continued to improve in September and showed sustained improvement in Q3 2009, according to the S&P/Case-Shiller home price indices. The S&P/Case-Shiller US national home price index declined a less-than-expected 8.9% y/y in Q3, a big improvement from drops of 14.7% y/y in Q2 and 19.0% y/y in Q1. The 10-city and 20-city composites for September declined 8.5% y/y and 9.4% y/y, respectively; however, showing improvements every month since the beginning of the year. The 10-city and 20-city composites registered their fifth consecutive month-on-month gains in September, climbing 0.4% m/m and 0.3% m/m, respectively.

• US consumer confidence rose for the first time in three months in November. The Conference Board US confidence index unexpectedly increased to 49.5 this month from an upwardly revised 48.7 in October, the Conference Board reported. The present situation index was at 21.0 in November, the lowest level in 26 years, virtually unchanged from an upwardly revised 21.1 in October. The expectations index rose to 68.5 from October’s upwardly revised 67.0.

• US home prices were unchanged m/m in September after a revised 0.5% m/m decline in August, according to the Federal Housing Finance Agency’s monthly house price index. House prices increased 0.2% q/q in Q3 2009.

Europe

• Eurozone industrial new orders grew a more-than-expected 1.5% m/m in September after a downwardly revised 0.6% m/m increase in August, according to data from Eurostat. September industrial new orders fell 16.5% y/y, easing the pace of decline from a revised 23.2% y/y August drop.
• Germany’s GDP rose a seasonally adjusted 0.7% q/q in Q3 2009, the second rise since Q1 2008, after a 0.4% q/q increase in Q2, final Q3 GDP data from the Federal Statistical Office showed, confirming an initial estimate from November 13. The Q3 economy shrank 4.8% y/y wda and 4.7% y/y nsa, final Q3 data confirmed, easing from Q2’s contraction of 5.8% y/y wda and 7.0% y/y nsa. Capital investment grew 1.3% q/q, with spending on machinery and equipment increasing 0.8% q/q and construction spending advancing 1.5% q/q. Imports rose 5.0% q/q in Q3, outpacing a 3.4% q/q increase in exports. Private consumption declined 0.9% q/q in Q3, while government spending increased 0.1% q/q.
• The Ifo German business climate index increased more than expected to 93.9 in November from an upwardly revised 92.0 in October, indicating Germany’s business confidence climbed for an eight consecutive month and to the highest level since August 2008, data from the Ifo Institute showed. The current conditions index increased to 89.1 in November from an upwardly revised 87.4 in October, while the business expectations index rose to 98.9 from October’s 96.8.

• UK business investment slipped a less-than-expected 3.0% q/q in Q3 2009, easing the pace of decline from a 10.2% q/q drop in Q2, according to preliminary Q3 data from the Office for National Statistics. Business investment fell 21.7% y/y in Q3, less steep than Q2’s 21.8% y/y drop that was the largest since records began in 1967.
• UK net mortgage lending grew £3.1 billion in October, the same increase as in September, compared with a £3.7 billion rise in October 2008, according to data from the British Bankers Association. Non-financial companies made a £0.7 billion repayment in October, compared with a £3.9 billion repayment in September. Mortgage approvals increased slightly to 42,238 in October from 42,073 in September.

Asia-Pacific

• The Conference Board Australian leading economic index, a measure of future economic activity, advanced 0.3% m/m in September, a fourth consecutive monthly gain, to 115.6, after downwardly revised increases of 1.5% m/m in August and 0.5% m/m in July, the Conference Board reported. Three of the seven LEI components rose in September: yield spread, share prices, and building approvals. The coincident economic index, measuring present economic activity, increased 0.1% m/m to 113.5 in September after a 0.2% m/m decline in August and a 0.1% m/m increase in July.

FX Strategy Update

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