EUR Holds on to Gains; AUD Outperforms Following Better Data

A relatively stable session for currencies during the Asian session with the EUR able to cling on to the tentative gains made yesterday.

The AUD was one of the better performers with building approvals bouncing back in November from a revised 10.0 percent fall the previous month. Approvals rose 8.4 percent m/m and recorded a less-than-expected decline of 18.9 percent compared with a year ago as easier mortgage rates following Reserve Bank of Australia rate cuts helped buyer sentiment (Note also that HIA new home sales also rose 6.8 percent m/m in the same period, as reported yesterday, so the housing market looks to have found some kind of footing).
 
UK data was a touch more mixed with the British Retail Consortium’s like-for-like sales showing healthy Christmas shopping in December. Sales rose 2.2 percent y/y, well above the 0.4 percent expected and a strong rebound from November’s dismal -1.6 percxent and recording the fastest pace in increase since April. Granted, 2010’s severe weather in December could make the figures look better than they really are and retailers were reportedly offering hefty discounts during the Xmas period. Nevertheless, it is a welcome plus in the recent series of disappointing data.
 
The same sentiment was also present in the RICS house price data which showed house prices falling at the slowest pace in three months in December as demand showed a marginal pick up. However, RICS commented that the outlook for the housing market remains grim and subdued in coming months as the continued uncertainty surrounding the UK economy and the Eurozone take their toll.
 
The same mood was not reflected in the British Chamber of Commerce’s Q4 survey which showed manufacturing domestic sales and orders and service sector orders falling to their lowest levels since 2009. The BCC added that the UK economy stagnated in Q4 2011 and was very likely to see a quarter of economic contraction in Q1 2012. Take note Bank of England…..
 
Markets had to wait for the release of China’s December trade data which showed a sharp increase in the trade surplus as a result of a hefty decline in imports. Import growth was a poor 11.8 percent y/y, well below forecasts of 18.0 percent and 22.1 percent the previous month. Export growth matched consensus with a +13.4 percent reading with the surplus rising to $16.52 bln from $14.53 bln as a result. Surprisingly, AUD held on to its day’s gains despite the weaker import performance.
 
It was a relatively calm session overnight with the EUR managing to find some support off 18-month lows. German data was mixed with trade numbers looking strong in November (surplus rising to €16.2b from revised €11.5b) but was not reflected in industrial production data which fell 0.6 percent on month after a 0.8 percent increase the previous month. The Merkel/Sarkozy summit came and went with little new for markets to latch on to. The CHF took Swiss National Bank's Hildebrand’s resignation in its stride with only a small kneejerk reaction lower in EURCHF but, with limited impact on official policy as Jordan takes over the reins in the interim; the 1.20 floor remained intact and unchallenged.

The US data calendar was bare overnight but a late release of US consumer credit data suggested that banks are relaxing credit criteria and returning to some semblance of normality as total credit jumped to $20.37 bln from $6.02 bln, the largest jump in over a decade, with non-revolving credit (non-credit card) rising a whopping $14.8 bln. Wall St posted modest gains on the day with the DJIA up 0.27 percent, S&P +0.23 percent and the Nasdaq +0.09 percent. Alcoa, the first company to report Q4 earnings in the DJIA, beat forecasts on revenue yet still recorded a loss on weaker aluminium prices after the bell.