Dollar Weaker for Thanksgiving

From the BBH Currency Strategy Team

– BoE governor Carney announced the end of its mortgage support program, ironically just as the ECB appears to be discussing implementing a similar program – Berlusconi was finally expelled from the Italian Senate in another good piece of news for the Letta’s government – We look at today’s Eurozone data, including the confidence surveys, money supply, unemployment data from German, and Spanish GDP – Weekly MOF data show that Japan investors increased purchases of foreign bonds for the seventh straight week – It was a mixed day for data out of Australia, but good enough for the Aussie to break its losing streak – Korea’s Current Account surplus widened to a record $9.51 bn 

Price action: The dollar is mostly weaker against other major currencies on the day. EUR/USD is trading on both sides of 1.36 while GBP/USD has made a decisive break above the 1.63 level. The Australian dollar is outperforming on the day, rising to 9.140 and breaking a streak of six consecutive losing sessions after better capex data helped spur a short squeeze.NZD is also outperforming at 0.8160 against the USD, in part boosted by a higher-than-expected business confidence reading (at 60.5, the highest since March 1999) which helps solidify expectations for a hikes by the RBNZ next year (a 65% chance of a hike in March is priced in). USD/JPY is stable, trading just over 102. Amongst majors, SEK is underperforming, in part due to weaker Swedish retail sales for October. In EM markets, we note that THB seemed to have stabilized, for now at least, after the PM survived a confidence vote overnight in the lower house, though the SET equity index fell 0.9%, erasing yesterday’s gains. The MSCI Asia Pacific index was up 0.7% with the Nikkei adding 1.8%, to the highest level since late 2007. Better October industrial profits data for China (+13.7% y/y), along with another cash injection by the PBOC (RMB19 bln) supported the Shanghai index’s gain of 0.8%, a 1-month high. EuroStoxx is up 0.4% led by the Italian MIB. S&P futures are up 0.3%.

• BoE governor Carney announced the end of its mortgage support program, ironically just as the ECB appears to be discussing implementing a similar program. The Funding for Lending Scheme will now be refocused on businesses instead of home loans. The BoE will also end the measure which relieved banks from their capital requirements against FLS mortgages. In contrast, reports out yesterday suggested that ECB is considering a new facility whose access is conditioned on new loans, akin to the FLS.
• Berlusconi was finally expelled from the Italian Senate in another piece of good news for the Letta’s government. The move was mostly expected, but as it is often the case in Italian politics, there was plenty of room for surprises. In the end, Berlusconi’s eviction did not prove nearly as disruptive as it had appeared to be a few months ago. After surviving a vote of confidence over the 2014 budget yesterday, the path seems clear for the government to establish a period of stability, at least for the near term. The MIB is outperforming on the day, up nearly 1.0%, just 1.8% from making new highs for the cycle.
• Eurozone’s consumer confidence data for November came in right at expectations of -15.4. Economic confidence rose to 98.5, slightly higher than the 98.0 expected, while the services and industrial indicators beat estimates at -0.8 and -3.9, respectively. On the money supply side, M3 in the euro-area expanded by 1.4% y/y in October, less than the 1.7% forecast. Also of note, the ECB stated that bank lending contracts 2.1% y/y for the region in October, compared with a 2.0% contraction in the previous month. This marks the 18^th consecutive month of bank lending contraction.
• German unemployment data for November showed a fourth consecutive monthly increase. Seasonally adjusted, unemployment increased by 10K to nearly 3 mln, though the rate remains at 6.9%. Import prices were lower than expected, at -0.7% m/m (exp. -0.3%). Regional November CPI data is tricking in this morning, but the national CPI preliminary figure will be released at 13:00 GMT, and is expected to show an increase of 0.1% m/m from -0.2% in the previous month. Separately, Spanish final Q3 GDP came in a touch lower than expectations at -1.1% y/y but the November EU Harmonized CPI came in at 0.3% y/y (exp. 0.1%). Also of note, Italy’s business confidence rose for the 7^th consecutive month to 98.1, a 2-year high.
• Weekly MOF data showed that Japan investors were net buyers of foreign bonds for the seventh straight week, this time to the tune of JPY1.4 trl. This amount, which corresponds to the week ending on November 23, is firmly on the higher end of purchases. For example, the highest weekly print this year was JPY1.6 tln, back in August. That said, Japanese investors are still overall net sellers of foreign bonds year to date (JPY 2.0 tln). On the other hand, non Japanese investors have been net buyer of Japanese stocks, and continue accumulating exposure this year. The Nikkei index jumped 1.8% to its highest close in almost six years supported by the weaker yen and global stocks. USD/JPY continues to creep higher to 102.28, looks set to test the May high of 103.74 soon.
• Australia’s new home sales fell sharply but better private capital expenditures was enough to help the Aussie to break its losing streak. Capex rose 3.6% (vs. exp. -1.2%) in Q3, though Q2’s readings were revised lower from 4.0% to 1.6%. The details of the report showed that spending on buildings and structures increased 6.3% while investments in new plant and equipment fell 1.5%. New home sales data, however, fell by 3.8% m/m in October, compared with a positive reading of 6.4% in the previous month. Australia’s fixed income markets were little change on the news, still pricing in about a 25% chance of a RBA rate cut in Q1 of next year. The Australian dollar, however, moved higher to 9.120 after the release of the stronger capex data, breaking the streak of 6 consecutive sessions down against the US dollar.  
• Korea’s Current account surplus widened to a record $9.51 bn vs. $6.54 bn in September. Improvement was seen across the board with both goods and services balance doing well, at $7.02 bln and $4.65 bln, respectively. The data casts some doubts about our view that the BoK is stepping up intervention to stem the continued outperformance of the won. At this point however, we still think the bank will not tolerate a move much lower in JPY/KRW. The pair recently broke below the 10.50 level, but note that gains were driven mainly by the weaker yen as USD/KRW has been, on net, stable around 1060 for over a month.