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News & Analysis:

December 11, 2:00 AM: EUR/$..0.8835 $/JPY..110.80 GBP/$..1.4445 $/CHF..1.7078

European Trading Preview by Jes Black

At 4:30 AM UK November Final MO (exp n/f, prev 0.7%) UK November Final MO y/y (exp n/f, prev 7.3%) UK November Output x fd/drink/tbacco/petrol (exp 0.1%, prev n/f) UK November Output x fdtp y/y (exp 0.9%, prev 1.0%) UK November PPI input sa (exp 0.6%, prev -1.2%) UK November PPI input sa y/y (exp 9.8%, prev 12.2%) UK November PPI Output NSA (exp 0.1%, prev 0.1%) UK November PPI Output y/y (exp 2.7%, prev 2.6%)

The dollar is seen trading mixed Monday after Saturday's US Supreme Court ruling overturned Friday's Florida Supreme Court decision to allow the hand recounts to continue. The market got a slight boost from the news as it went back to factoring in a Bush win which is seen as dollar-positive but retreated by the end of Tokyo trading to levels near the US close on Friday. The market will watch for the outcome of the 5-week long election battle after the Bush and Gore camps each present their final arguments before the US Supreme Court at 11 AM this morning. Gore is expected to concede if he is again refused the right to have key votes recounted.

Meanwhile, the dollar also gained slightly against the euro at the start of the Tokyo session after Morgan Stanley announced that their Capital International index (MSCI) would be reweighed to include smaller companies with large floats. This was seen to favor US and UK companies and disfavor Japan, Germany and France. Analysts said the changes could trigger up to $200 billion in flows as investors respond to the reweighing of the benchmarks. However, the immediate effect on the FX markets is seen to be limited as the first change will be made in November of 2001 and completed in May 2002. The euro/dollar began by dropping immediately to the day's low of $0.8813 before rebounding to the high of $0.8845 on short trading. The dollar then stabilized against the euro at the end of the Tokyo session after EU leaders agreed on reforms in Nice. The meeting had broken down but came through after France proposed a re-weighting of the vote in EU decision making, which takes one vote away from the six largest countries and gives one extra to medium-sized countries. It was a difficult battle that redrew the power lines in the EU and European Commission President Romano Prodi said that the summit "was like all good deals in that it ended at dawn." Analysts feel that the deal is a step forward to a more efficient decision making system for EU and is therefore euro-positive.

The yen was steady against the dollar at the end of the Tokyo session after recouping earlier losses triggered by worries that a change in the MSCI would stem demand for Japanese equities. The dollar/yen rose to a high of 111.40 in early trading before returning to the 110.80, near Friday's New York close of 110.96. Meanwhile, analysts are awaiting the BoJ's release of the Tanken business sentiment survey on Wednesday for signs of an economic recovery. Giving hope to this notion was the Nikkei's 319 point rise to end up 2.17%, and above 15,000 for first time in more than 1 month. The key 15,000 mark is considered significant since a close above that level is seen as a sign of economic recovery. Nonetheless, analysts believe that a full-fledged economic recovery would be unlikely unless consumer spending recovers. Consumption accounts for about 60% of GDP and the government has still failed to find a way convince its population to spend.

Finally, cable is trading around $1.4445, near its session lows after the U.K.-based Vodafone agreed to acquire a 15% stake in Japan Telecom as part of a strategic move to take majority control of Japan Telecom's mobile subsidiary J-Phone. Vodafone would pay about US $2.5 billion in cash for the stake under the deal, which will be announced next week. The European equities markets are expected to shrug off news that millions of dollars may be wiped off the value of companies in continental Europe and Japan. European bourses are seen opening higher today after the 2% rise in the Nikkei following a strong 6% increase in the Nasdaq on Friday.

December 10, 7:00 PM: EUR/$..0.8823 $/JPY..111.23 GBP/$..1.4460 $/CHF..1.7112

Daily Open Japanese Trading Preview by Darko Pavlovic

No data coming from Japan today.

The dollar is trading around 111.19yen, lower from Fridays New York closing at 111.31 after October Japan current account surplus fell 28.6% from a year earlier to 769.1 billion yen. Japan July-September capital spending rose 0.2% compared with the same period a year earlier as Japanese companies increased spending on plant and equipment. That was a third consecutive quarter on quarter of year on year increases after posting the first rise in nine quarters in the January-March period. Japan big companies sentiment improved in the October-December period to +6.3 from the previous quarter. USD/JPY firmed early in the session, following a sharp fall in the EUR/USD on US Supreme Court's halted manual recounts in Florida. However, the USD/JPY has been limited around the 111.50 area. There is a feeling that a further upward test from the 111.50 area would need strong momentum. PM Mori's political position would be of interest for the market today, after a Japanese weekly magazine carried a controversial photograph of him with a person who's supposed to have links to a right-wing gang. Dollar is expected to be well supported against yen after Morgan Stanley Dean Witter announced adjustments of its index that will likely damage Japanese stocks.

Morgan Stanley Capital International Ltd. said it will change the way it calculates the world's most widely watched indexes, a move that may prompt as much as $200 billion of share transactions. MSCI plan to base the weighting of companies in its indexes on the shares available for trading, or the free float.'' Until now, a company's mass in the index has been decided by its total value, which comprise of shares that don't trade The decision may begin a spray of trading since the indexes are benchmarks for as much as $4 trillion in investments in 51 countries, according to MSCI. The company said about 1,500-investment companies use its indexes. Many fund manager's track index performance by owning the same stocks in the same proportion as those set by MSCI. Of the 51 countries tracked by MSCI, Japan is expected to see the biggest outflow of the expected $200 billion because so many of its companies have blocks of shares that can't be traded by the public. The U.K. and U.S. are likely to benefit.

The euro is trading around $0.8825, slightly higher from Fridays New York closing at $0.8812 after EU summit in Nice brought some fresh ideas how to make the Union more efficient. Finish Finance Minister Niinistoe said the national central bankers from the euro region may have to take turns voting on interest rates once more countries join the euro. EU is thinking of reforming the ECB the way US Fed operates. Any change in the ECB voting mechanism would have to be endorsed by EU governments and by the central bank. The ECB now has 17 people setting interest rates for the 11-euro states: six board members, and 11 governors representing the national central banks. EU Commission President Prodi said that difficulties in reaching a reform in Nice would not affect the value of the euro.

OPEC would "almost certainly" agree on an output cut Jan. 17 if prices continued to decline, Kuwait's Oil Minister al-Sabah said in remarks published Monday. Sheikh Saud, often called a price hawk, said that he anticipates a cut of 1 million barrels per day, factoring in the usual reduction in demand for oil in the Northern Hemisphere's spring and summer seasons. OPEC oil ministers are scheduled to hold an extraordinary meeting in Vienna Jan. 17 that is intended to assess the impact of OPEC's decision in November to keep its output ceiling unchanged. An OPEC source said that calls for an output cut will gain momentum from the decline in oil prices in spite of Iraq's suspension of its 2.4- million-bpd exports.

In a race for Presidential elections George W. Bush's lawyers asked the Supreme Court on Sunday to reverse a Florida high court decision that ordered a recount of thousands of disputed ballots. Al Gore's attorneys asked the justices that voters have the right to have their ballots counted.'' The justices hear arguments Monday morning.

December 8, 3:00 PM: EUR/$..0.8839 $/JPY..111.21 GBP/$..1.4459 $/CHF..1.7108

USD Higher on Jobs & Courts' Rulings by Ashraf Laidi

The dollar pushed higher against the euro, yen and Swissy on a combination of economic data and Bush-friendly Court Ruling in Florida. Weaker than expected employment payrolls at 94,000, and an increase in the jobless rate to the 4.0% handle, both confirmed a slowdown in the US economy. But the higher than expected 4% rise in wage growth caused some jitters of inflationary risks, which led traders to dampen their optimistic outlook for interest rates. This pushed the dollar higher on expectations that the Fed may take longer to cut rates and that the dollar rate will continue to prevail. The dollar gained further after two Florida courts ruling against Gore's claims to throw out thousands of absentee ballots. EUR/$ dragged the dollar off its 89.15 cent highs pushing it to a new session low of 88.22 cents. $/CHF rallied after today's decision from the SNB to hold interest rates unchanged. Sentiment of a peaking interest rates emerged after SNB announced it saw no major inflationary pressures in its quarterly press conference. $/CHF jumped by more than 70 pips to 1.7100 right after the 3:45 AM decision, drifted back towards the 1.7020s before rebounding a full 100-pts.

EUR/$ and $/JPY went their opposite ways as dollar buying took over ahead (and after) the Florida courts decision as well as from the ensuing stock rally. $/JPY gained almost 100 pts, which was attributed to Sunday's reweighing of Morgan Stanley's Capital Index (MSCI), a major benchmark equity index, which will effectuate a reduction in the allocation of Japan's weight. The reason to this is that MS is moving towards a floating-based index away from a capitalization index, which means that companies' stocks will be allocated according to how much stock is available for purchase (how much is floated in the market) instead of simply how many shares are issued.

Next Wednesday's release of the Tankan Survey for Q3 is expected to show a gradual improvement in corporate sentiment. The headline index for large manufacturers is expected to have risen to 12 in Q3 from 10 in Q2. But expectations for sluggish activity for next quarter are expected to see the figure drop back to 10 in March. This number is arrived at by subtracting the number of businesses expecting negative outlook from those expecting positive results. Also important in the index is manufacturers' plans for capital spending, a crucial factor in boosting the economic recovery. Recall that government spending was the only item that registered a broad recovery, in Q3 GDP, rising by a record high 7.8%, indicating that growth hopes continue to rely on the corporate sector. The outlook for small manufacturers, however, remains negative, as the Tankan is expected show a figure of 14 from 17 in Sept. This particular item could weigh on the yen, as was the case in September.

The dollar however could get under renewed pressure later in the day when the decision from the Florida Supreme Court responding to the aforementioned ruling is due.

The euro recovery has acquired a broader base and is becoming more accepted by the markets. Looking into the rest of the year, trading liquidity will start drying up progressively, but that will not rule out sudden moves in currencies, especially spikes in the euro. Continued softening in the US economy will be the major booster to the euro. And when the Fed meets in 2 weeks' time and removes the tightening bias, markets will interpret the move as a materialization of Greenspan's speech, paving the way for lower US rates and an eroding US yield differential.

December 8, 7:00 AM: EUR/$..0.8895 $/JPY..100.87 GBP/$..1.4495 $/CHF..1.7006

Dollar Mixed Before Labor Report by Jes Black

At 8:30 AM US Unemployment (exp 4.1%, prev 3.9%)US November Average Hourly Earnings (exp 0.3%, prev 0.4%) US November Average Work Week (exp 34.3 prev 34.3) US November Payroll Employment (exp 140l, prev 137k) At 2:00 PM Fed Chairman Greenspan speaks at dedication ceremony for the Fed's Birmingham branch.

The dollar edged higher against the yen but lost ground verses the pound in light European trading this morning. The US currency also fell early in the session against the euro and Swiss franc before returning to levels seen at yesterday's New York close of $0.89 and 1.70 respectively. This movement occurred after the Swiss National Bank announced it was keeping interest rates unchanged due to no danger of increasing price levels. The SNB's Gehrig sees inflation in Switzerland at 2.1% in 2001 and below 2% in 2002. The dollar pushed to a high of 1.7104 after the news and the Swiss franc also fell against the euro, reflecting expectations that rates may not rise further. Otherwise, the FX market was cautious as it awaited this morning's release of US jobs data.

The US labor report is expected to add quantitative evidence to Fed Chairman Greenspan's speech on Tuesday which pointed to a slowing economy. If there proves to be a considerable shrinking in the pool of workers there is a possibility the Fed may change the tightening bias to neutral at the December 19th FOMC meeting. Markets will therefore pay close attention to whether there has in fact been a significant loosening in labor markets because tight labor markets lead to inflationary pressures. Yesterday's jobless claims rose greater-than-expected and the unemployment rate is forecasted to return to the 4.1% level after hovering at a 30-year low of 3.9%. If the report shows a higher than expected unemployment rate the markets are likely to send the euro above 90 cents.

The yen fell against the dollar on concern that the Japanese economic recovery has a long way to go. The nation's household spending which makes up around 60% of GDP fell 0.2% in October from a month earlier. The yen did gain slightly against the euro after falling to four-month low of 99.20 but this is seen as a consolidation before the euro advances further. Analysts say that USD/JPY is likely to stay in the 110.50 to 111 range in today's session. The Nikkei ended down 23 points, or 0.15% to 14696, following the 1.5% decline in the Nasdaq yesterday. More warnings from companies over slowing earnings and sales kept US stocks under pressure on Thursday. In the tech sector, chips, telecommunications, hardware and software shares fell across the board, amid negative news for Motorola and Microsoft. The Dow Jones Industrial Average closed down 47.02 at 10,617.36, while the S&P 500 index fell 7.92 to 1,343.54. Nonetheless, European stock markets rallied with the FTSE climbing 100 points in late morning trade as gains in tech and telecom boosted the index 1.6% to 6,332. The Dax is also up +115 points, or 1.8% as gains in Nasdaq futures push that index higher too. Today's looks favorable for US equities, with Dow futures up 87 points and the Nasdaq up 95 points as well.

 

 
Article submitted 4 times daily by ForexNews.com, the online source for foreign exchange information.

ForexNews.com is a service provided by MG Financial Group.

MG Financial Group, a privately held company based in New York, has been offering internet FOREX market making services since April 1997. The focus of MG’s business is sophisticated self-traders. MG Financial Group clears over one billion dollars in transactions per month

 

 
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Last modified: April 04, 2001

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