Trade Optimism And The Recovery In Oil Boosts Risk Appetites

Australia reported slightly better than expected November retail sales (0.4% rather than 0.3%) but does little to ease concern about the headwind from housing, where investors learned earlier in the week that permits fell by more than a third from year-ago levels. Today's news that construction index fell to five-year lows reinforces troubled outlook. The swaps market appears to be discounting a roughly 25% chance of a rate cut later this year. 

 The dollar is sidelined against the yen today, stuck in less than a quarter of a yen range (~JPY108.25-JPY108.50). There is an expiring option for $425 mln at JPY108.50, and one for about $435 mln struck at JPY108.20 that will also be cut. Unless the dollar closes above the high for the day thus far, it will be the fourth consecutive weekly decline. The domestic headwinds have not prevented the Australian dollar from extending its gains as it pushes to its best level since mid-December, near $0.7230, which is two standard deviations from the 20-day moving average. Above $0.7240, there is little technical resistance until closer to $0.7400.  

Europe

The UK reported disappointing November trade and industrial production figures, but the stronger than expected service sector lifted the monthly GDP reading more than anticipated. The trade deficit narrowed by GBP100 mln from October but it was still about GBP100 mln more than economists forecast. Industrial output was expected to have risen by 0.2% but instead fell by 0.4% and the small upward revision (to -0.5% from -0.6%) makes little difference. The index of services, on the other hand, rose by 0.3% instead of 0.1% as had been expected. This offset much of the negativity to lift the monthly GDP to 0.2% in November from 0.1% in October. The vote next week in the House of Commons on the Withdrawal Bill, which by most accounts, faces the prospect of a stunning defeat overwhelms the economic data on sentiment.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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