JPY Industrial Production much better than forecast
GBP UK lending data in-line
CHF KOF misses - down 5 months in row
USD GDP and New Homes on tap
Complete reversal of news from Japan tonight as Industrial Production registered much stronger than expected results jumping 1.6% vs. estimates of a -0.4% contraction. The gains were driven by the auto sector which is enjoying unprecedented competitive advantages in both North America and Europe due to yens weakness against both the greenback and the euro. The sharp rise instantly revived talk of a BoJ rate hike in December with the latest Reuters poll reporting that 14 out 33 economists expect the Japanese central bank to tighten. However, as we noted yesterday the Japanese economy is schizophrenically divided into a very robust corporate sector and an anemic consumer base. The BoJ is unlikely to act until it can be relatively confident that consumer sentiment will perk up. To that end Thursdays jobless figures, overall household spending report and CPI data could all make or break the case for a December rate hike. For the time being the market has its doubts as USD/JPY retraced nearly all of its losses in early European trade after the initial surprise in IP results, wore off.
Meanwhile in Switzerland, economic data was not nearly as rosy, as the the KOF index of leading economic indicators missed badly to the downside printing at 1.73 versus 1.90 expected. The month prior was revised downward as well from 2.00 to 1.95. This was the fifth consecutive monthly decline in the KOF suggesting that Swiss growth may have peaked. The news is unlikely to effect SNB widely expected decision to raise ratesby another 25 basis points to 2.00% at the next scheduled SNB directorate meeting on December 14th but it may impact future policy actions in Q1 of 2007 especially if Swiss GDP growth slows markedly. With Swiss rate hikes already lagging the pace of tightening by the ECB, the Swissie continued to be pressured in European trade with EUR/CHF flirting once again with the 1.5900 figure.
The dollar, however managed to stage a mild comeback, as commentary from French FinMin on the dangers of a high euro and general profit taking helped to push the EUR/USD to 1.3150. But greenback longs looking for a turn need to be careful. Dollar bulls desperately need some positive economic news to stem the tide of losses and alter market sentiment and unless the GDP figures and New Home Sales numbers print better than expected the anti-dollar momentum express will likely roll on.
