Expert Analysis of Today's Market

• The dollar traded little changed against most key currencies Friday. US home construction dropped to the lowest level in 17 years and consumer confidence fell the most on record. The US weak economic data added to growing worries about a worsening global economic slowdown; ironically, helping the dollar as risky assets and commodities were sold and funds returned to the US. The yen was also supported by deleveraging and increased risk aversion as carry-trades were unwound, but consolidated gains this week. The commodity currencies have seen heavy losses this fall as most commodities have plunged. The Australian dollar gained this week following brutal earlier losses, while the Canadian dollar fell slightly this week. The euro was lower while sterling pared losses this week.
• The USD/CAD rose for a third week following the penetration of the long-term downtrend’s resistance. The pair was modestly higher this week but could not break the 1.20-area resistance as it is currently overbought. Technically we expect strong further gains, but a short-term consolidation is possible. This should be a good buying opportunity as the USD/CAD will likely continue rising as the global economy cools and the commodity boom turns into a bust.

Financial and Economic News and Comments

US & Canada

• US housing starts declined a more-than-expected 6.3% m/m to a seasonally adjusted 817,000 annual rate in September, the lowest level since January 1991, following August’s revised 8.1% fall m/m to 872,000 and July’s 12.9% m/m drop, data from the Commerce Department showed. Housing starts plunged 31.1% y/y. The decline in September housing starts was mainly due to single-family housing starts, which dropped 12.0% m/m to a 544,000 annual rate, a 26-year low. Multi-family housing starts increased 7.5% m/m in September, up 9.6% y/y. Housing starts declined in the Northeast and West, increased in the Midwest, and were unchanged in the South. Reduced construction is important to the process of working off excess inventories; however, housing starts will likely continue falling in the coming quarters.
• Building permits, a sign of future construction, fell a more-than-expected 8.3% m/m to a 786,000 annual rate in September, matching the lowest level since November 1981, following August’s 8.5% m/m drop to 857,000 and July’s 17.7% m/m plunge. Building permits plummeted 38.4% y/y. The three consecutive drops signal home construction will fall further in the US recessionary housing market, pointing to further contraction in Q4.

• The Reuters/University of Michigan preliminary index of US consumer sentiment fell to 57.5 in October, indicating US consumer confidence dropped the most on record, following 70.3 in September. The measure averaged 85.6 in 2007. The current conditions index plunged to 58.9, the lowest level ever, from September’s 75.0. The consumer expectations index, which projects the direction of consumer spending, declined to 56.7 from 67.2.

Europe

• The eurozone trade balance posted a €6.1 billion deficit in seasonally adjusted terms in August, following July’s €6.7 billion deficit, Eurostat said.
• Eurozone construction output increased 0.1% m/m in August, matching July’s gains, Eurostat reported. In weighted daily average terms, construction output fell 2.5% y/y in August, following July’s 3.3% y/y decline.

Asia-Pacific

• Japan’s tertiary industry index declined 1.4% m/m to 109.1 in August, following a 1.2% m/m increase in July, the Ministry of Economy, Trade and Industry said. Industries that contributed to the August decline were the following: 1) wholesale and retail trade (-2.2%), 2) services (-2.1%), 3) electricity, gas, heat supply and water (-4.2%), 4) finance and insurance (-1.1%), 5) transport (-1.1%), 6) eating and drinking places, accommodations (-1.3%), 7) medical, health care and welfare (-0.6%), 8) compound services (-2.6%), and 9) learning support (-1.0%). Industries that contributed to the increase were information and communications (3.1%) and real estate (0.9%).
• Japan’s nationwide department store sales dropped 4.7% y/y in September after declining 3.1% y/y in August, according to the Japan Department Stores Association. Department store sales in Tokyo fell 4.6% y/y following August’s 4.1% y/y decline.
• Australia’s import price index increased 5.0% q/q and export price index jumped 13.8% q/q in Q3, the Australian Bureau of Statistics said.
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