The U.S. Dollar traded higher against several currencies subsequent to economic reports released on Monday showing that the New York Manufacturing Index printed at 10.2 for November, after posting at 6.2 in October. While the numbers denoted an increase, they fell short of the expected 11.1. The greenback surged to a seven-year high versus the Yen as Japanese news indicated that the country's Gross Domestic Product came in at an annualized 1.6 percent, reflecting the contraction of the economy for the third quarter, and signaling that the nation is now in a recession. The unexpected report dampened risk appetite in the Forex and prompted traders to opt for harbor assets. Later in the day, the U.S. revealed that Industrial Output declined 0.1 percent in October, disappointing those who predicted Output would show an increase of 0.3 percent. The figures for September were modified and now show that Production in the Industrial sector only went up 0.8 percent, rather than the 1.0 percent announced last month. The release divulged that capacity utilization, which is a gauge of how companies make use of their resources, fell 78.9 percent in October after reading at 79.2 in September.
Gold Prices surged close to a two-week high while investors continued to speculate the shiny metal may dip in the weeks ahead. On Monday, the commodity showed no particular trend, even after rising on Friday following statements by a Federal Reserve official intimating that the central bank could hold off from raising the borrowing costs in the latter part of 2015.
In the Euro region, the German Bundesbank released its monthly report, and stated that the country's economy could slow further in the months ahead. The document also called for the European Central Bank's officials to desist from the idea of expanding stimulus as this has not offered positive results so far. Announcements issued on Monday confirmed that the region's Exports increased, contributing to a larger Trade Surplus. Despite the negative tone of the Bundesbank, sources say that Mario Draghi, the head of the ECB will accomplish his goals of improving the bank's balance sheet. They believe that Mr. Draghi will drive the balance to 3 trillion Euros. However, for this to happen, he may have to bypass some of the objections that the monetary authorities have towards quantitative easing. Many experts say that Mr. Draghi will have to purchase a bigger amount of covered bonds, but the majority of the policy makers oppose expanding stimulus.
The British Pound continued to trade to the downside as the drop in House Prices and last week's comments by the Bank of England's governor weighed on the Sterling. Official publications confirmed that Home Values have fallen, and that activities in the Construction sector have gone down as well. Because of this, and concerns over the possibility that the U.K.'s economy could face headwinds as a result of the Euro-zone's troubles, the central bank is of the opinion that this isn't the time to boost the benchmark interest rate.
The Swiss Franc gained versus the Euro while investors look forward to the "bullion referendum" scheduled for the latter part of the month. A vote in favor means that the Swiss National Bank will boost its gold reserve holdings, and this would limit its ability to limit the exchange rate of the Franc versus the Euro.
Japan delivered another surprise by announcing the contraction of its economy in the third quarter of 2014. The numbers signaled that the economy has reverted into a recession, beating estimates for slight growth. The report raised speculation that Prime Minister Shinzo Abe will dissolve Parliament in order to hold elections in December. Analysts say that the numbers reflect the fact that the country has not shaken off the negative impact of the April consumption tax increase, and this may suggest that the government will delay raising the sales tax for a second time. Economists say that the outlook is not encouraging even though consumers are spending more and exports have risen. But the data on these two fundamentals failed to offset the effects of the disappointing growth figures. Other news confirmed that Japanese companies aren't willing to increase production, and that investments in the real estate market have dropped.
And the Australian Dollar traded mixed, first slumping slightly, but then rallying against its American counterpart shrugging off less than stellar announcements divulging that New Automobile Sales fell 1.5 percent last month, after posting a rally of 2.9 percent in September. New Zealand's Dollar rose to over a two-week high against the greenback as a dip in Inflation Expectations in the U.S. dampened demand for the U.S. Dollar. In the meantime, Bill English, the country's Prime Minister contradicted the Reserve Bank's governor, Graeme Wheeler. He suggested that the Kiwi is not "overvalued," and that its current rate may help sustain the economy and propel moderate expansion.
EUR/USD- Traders Forecast More QE
The EUR/USD slumped after one of the New York Federal Reserve Bank officials, Wilma Dudley suggested that an early increase of the U.S. key cash rate could pose grave risks for the economy. Meanwhile, a poll showed that most investors expect the European Central Bank to boost stimulus. The majority anticipates that the central bank may opt for more purchases of covered bonds and asset-supported securities, even though the policy makers appear to be against the measure. But the monthly report from the bank denoted that the monetary authorities are willing to do whatever is needed to prompt economic growth. At this time, experts anticipate that the Euro-zone may only post economic expansion of 1.2 percent in the year ahead instead of the previously estimated 1.5 percent; and the consumer price index may only print at 0.5 percent for 2014, not at 0.7 percent. The publication also indicated lower growth expectations for 2016. On the data front, Monday's announcements divulged that shipments abroad went up in September by 9 percent on a year-over-year basis. The solid numbers bolstered the Trade Surplus which now stands at 17.7 billion Euros, after coming in at 15.4 billion euros in August.
GBP/USD- Sterling Still Weighed Down By Data
The GBP/USD fell further, reaching a fourteen-month low. This came about after the U.K. said that reports issued in the past week showing a major drop in House Prices still weighs on sentiment towards the Sterling. Industry releases indicated that property prices fell 1.7 percent this month after increasing 2.6 percent in October. The Office for National Statistics also announced that Construction activities went down 1.8 percent in September, missing forecasts for a hike of 3.7 percent. The GBP/USD has weakened, days after the Bank of England suggested that it's troubled by the fact that Inflation is still below the 2 percent target. In the quarterly report, it commented that it's likely consumer prices will slip below 1 percent in the coming months. The bank's officials were rather negative in their assessment of the economic outlook and intimated that inflation may not rebound for three years.
EUR/JPY- Japan Enters Recession
The EUR/JPY plunged on Monday as demand for risk assets ebbed in the Forex market following mind-blowing news out of Japan. These revealed that the country's Gross Domestic Product contracted an annualized 1.6 percent in the months of July through September after shrinking a modified 7.3 percent in the second quarter. Following the release, Etsuro Honda, the Prime Minister's aide stated that going ahead with another sales tax increase would be dangerous for the economy, especially if it expands less than 3.8 percent. The announcement was overwhelmingly negative and it bolstered speculation that Shinzo Abe could delay the consumption tax hike until at least the latter part of 2015. The news prompted the Japanese equities market to post serious losses, especially after the headlines around the country stated that it's now official, "Japan is in a recession." Sources close to Mr. Abe say that he's trying to gather support for his economic programs and will dissolve the Parliament to hold elections soon. Other releases divulged that Capital Spending fell 0.2 percent. The EUR/JPY also traded to the downside as investors anticipate an increase in stimulus in the Euro-zone.
XAU/USD- Physical Demand Increases
The XAU/USD remained more or less unchanged and hovered close to the lowest rate in two weeks after surging to a 2 ½ week high throughout the early part of Monday. India has announced an increase in demand and a hike in imports of the precious commodity. And with Japan delivering a blow to the markets stating that it has officially entered into a recession, dovish speculation on Gold Futures reached a record. Contracts for delivery in December jumped 0.2 percent to $1,188.40 an ounce during the morning hours in New York. These had traded at $1,193.60 earlier on the Comex. Bullion for immediate delivery remained near $1,189.30 in London.
Today's Outlook
Today's economic calendar reveals that the U.K. will deliver a bounty of data including Core CPI, CPI, Core PPI, PPI Input and Output, the House Price Index, and RPI. The Euro region will issue ZEW Economic Sentiment and German ZEW Economic Sentiment. The U.S. will publish PPI, Core PPI, and the Redbook. Japan will report on the all Industries Activity Index and may announce the Interest Rate Decision; the latter is tentative.