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Consumer confidence declines in the UK as Xmas gets closer

Tammy Wally
03 December 2008

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U.K. consumer confidence deteriorated in November as unemployment jumped and banks curtailed credit, Nationwide Building Society said. An index of sentiment fell 6 points to 50, the lowest since the survey began in May 2004, Britain’s second-biggest mortgage lender said in a statement today. The reading, taken from a survey of 1,000 people from Oct. 20 to Nov. 16, compares with 83 a year earlier. Pessimism increased “against the backdrop of an emerging recession in the U.K. and continued global economic uncertainty,” Fionnuala Earley, chief economist at Nationwide, said in the statement. “It remains to be seen whether the Chancellor’s recent announcement will greatly improve consumer confidence.” The GBP/USD is currently trading at $1.4782 as of 8:35am, GMT.

The euro traded low against the dollar before a report today that may show euro-area retail sales fell, boosting speculation the European Central Bank will cut interest rates tomorrow. “The bias is for the euro and the pound to go lower,” said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital Inc. “We’re talking about cuts of as much as 1 percentage point, if not more. The poor economic outlook is a negative factor.” The EUR/USD is currently trading at $1.2638 as of 8:58am, GMT.

Bank of America Corp. raised its forecast for the yen against the dollar on signs that the Bank of Japan is not in a hurry to lower interest rates to counter the nation’s recession. The yen is likely to trade at 96 by the end of March, compared with a previous prediction of 100, said Tomoko Fujii, Bank of America’s head of economics and strategy for Japan. BOJ Governor Masaaki Shirakawa said yesterday that cutting the benchmark interest rate from 0.3 percent could impede the function of the money market. “Slower policy easing steps by the BOJ compared to many other central banks will probably keep the yen firm in the next few months,” said Tokyo-based Fujii, confirming a research note published yesterday. The USD/JPY is currently trading at 92.86 as of 9:05am, GMT.

Finotec Analysis Team
03 December 2008

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Today's Economic Events

Time	Event	Currency	Period	Previous	Forecast	Significance	Actual
20:00	Interest Rate Statement	NZD		6.50%	5.00%
Central Bank set the nation's short term interest rate (i.e., "bank rate"). A rising trend in interest rates has a positive effect on the nation's currency. Short term rates are the paramount factor in currency valuation; traders look at most other indicators merely to predict how interest rates may change in the future. High interest rates attract foreigners looking for the best "risk-free" return on their money, which can dramatically increases demand for the nation's currency. The decision on where to set interest rates depends mostly on inflation. The primary objective of the central bank is to achieve price stability; when inflation rises above an annualized rate of approximately 2%, they will respond by raising interest rates in an attempt to bring prices down.
15:35	Crude Oil Inventories	USD		7.3M
The Energy Information Administration's (EIA) Crude Oil Inventories measures the weekly increase in barrels of commercial crude oil held in inventory by US firms. The level of inventories influences the price of petroleum products, which can have an impact on inflation and other economic forces.
15:00	ISM Non-Manufacturing Index	USD	Nov	44.4	42.5
The Institute of Supply Management (ISM) Non-Manufacturing Index measures the activity level of purchasing managers in the services sector, with a reading above 50 indicating expansion. A rising trend has a positive effect on the nation\'s currency. To produce the index, purchasing managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Traders watch these surveys closely because purchasing managers, by virtue of their jobs, have early access to data about their company’s performance, which can be a leading indicator of overall economic performance.
13:15	ADP Non-farm Employment Change	USD	Nov	-157K	-200K
Measures the number of new jobs created in the previous month, excluding the farming industry. ADP, a leading provider of employment solutions for businesses, releases this indicator two days before the official BLS employment report. ADP claims the indicator has predictive value in regard to official statistics.
10:00	Retail Sales m/m	EUR	Oct	-0.2%	-0.4%		-0.8%
Measures the value of sales at the retail level. A rising trend has a positive effect on the nation's currency because Retail Sales make up a large portion of consumer spending, which is a major driver of the economy and has a sizable impact on GDP. Traders pay close attention to Retail Sales because it is usually the first significant indicator of the month that relates to consumer behavior and is susceptible to surprises.
09:30	Services PMI	GBP	Nov	42.4	41.2		40.1
The Services Purchasing Manager\'s Index (PMI) measures the activity level of purchasing managers in the manufacturing sector, with a reading above 50 indicating expansion. A rising trend has a positive effect on the nation\'s currency. To produce the index, purchasing managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Traders watch these surveys closely because purchasing managers, by virtue of their jobs, have early access to data about their company’s performance, which can be a leading indicator of overall economic performance.
00:30	GDP q/q	AUD	Quarterly	0.3%	0.2%		0.1%
Gross Domestic Product (GDP) measures the total value of all goods and services produced by the economy.