$ The S&P 500 posted a strong rally, up 2.2% on the day, as the dollar’s decline to a new 15-month low and the BIS/G20’s repeated commitment to keep stimulus in place until a recovery is assured spurred investor risk appetite
$ Abundant market liquidity and investors’ search for yield lifted equities, USTs, credit and commodity prices; the US yield curve bull-flattened after a strong 3yr auction which spurred demand for longer maturities
$ The euro rose back above 1.50 against the dollar; quality yield majors such as NOK, AUD, BRL and CAD led gains as lower US yields drove portfolios to extend the carry trade
$ Gold reached a new high of $1,111.2oz on USD weakness, defying any speculation that this is a technical rather than a fundamental trend; oil recovered most of Friday’s gains, rising to $79.3bbl
$ The Fed said that 9 out of 10 banks that underwent stress tests earlier in the year have now raised sufficient capital, GMAC is the only exception
$ Fed Governor Tarullo: there is “substantial appeal” in the idea of a capital surcharge to discourage the growth of banks
$ The US record $40bn 3yr auction attracted stellar demand; indirect bidders accounted for 68.5%; the bid/cover rose to 3.33 compared with an average of 2.63 at the last ten auctions
$ US non-agency mortgage securities fell amid concerns that government programs have not improved the outlook for mortgage defaults and home values, fears about over-supply and expectations about a return in focus on fundamentals in early 2009
$ Fed Credit Survey: 15% of lenders tightened commercial lending standards in Q3, half of the previous survey and down from the year-ago peak of 80%; demand for prime mortgages recovered, but overall demand weakened
€ ECB’s Trichet: growth has been better than expected but this is no time for complacency and risks remain; central bank rate actions will be determined by domestic objectives but there is a consensus that the withdrawal of extraordinary liquidity measures will happen in a “timely and gradual” manner
€ German industrial production jumped 2.7%MoM in September versus an upwardly revised gain of 1.8%MoM in August (initially +1.7%); in Q3 as a whole manufacturing & mining output rose 3.5% versus -0.4% in Q2; the Economy ministry said “with increasing manufacturing orders, particularly for basic and investment goods, the recovery in industrial production should continue in the fourth quarter”
£ UK RICS house price balance jumped to +34 in October versus +28 expected and +21 in September, highest since Dec’06
£ UK BRC total retail sales surged to 5.9%YoY in October, up from 4.9% in September; like-for-like sales recovered to 3.8% versus 2.8% before, comfortably ahead of the 3-month pace of 2.2%
The dollar fell to its lowest in fifteen months versus a euro-weighted basket of currencies on Monday, hurt by increased risk appetite and renewed concerns about government spending.
Any speculation that the Federal Reserve would move to raise rates sooner than expected were dashed on Friday with the release of a troubling jobs report.
With US unemployment hitting a 26-year low of 10.2 percent, traders flocked to higher-yielding currencies, anticipated the interest rate gap between the US and other nations will widen.
The dollar slipped to $1.50 versus the euro, coming within half a cent of October’s 14-month low of 1.5059. Since the global economy began to show signs of life in the early spring, the dollar has fallen about 25 cents from its yearly highs.
The dollar dropped to a 3-month low of 1.6842 versus the sterling, then improved by a cent to 1.6720.
Versus the loonie, the dollar dipped to a 2-week low C$1.0550, down about two Canadian cents from its overnight levels. With the loss, the dollar slipped toward its yearly low near C$1.0200.
The dollar saw little movement versus the yen, bouncing back and forth around the 90 mark.
German industrial production continued its recovery in September as orders continued to grow, while exports rebounded after a fall in August despite a strong euro.
The German industrial production increased by 2.7%, compare to the expected 1%.
It’s pushing up the Euro.
Here is a snapshot of the Forex markets at 10:00 (GMT+8 ):
Crude oil prices surged toward $80 per barrel on Monday, boosted by a weaker dollar and concerns over Hurricane Ida, which is threatening the Gulf Coast.
Light sweet crude oil for December delivery moved to $79.43 per ounce, up $2 for the session.
Prices reached as high as $80.19 before retreating to 79.07.
Gold continued to rally to record levels on Monday as a weaker U.S. dollar added to the precious metal’s value as a hedge investment.
December gold rose to $1,101.40 per ounce, a gain of $5.70 on the session. Prices touched as high as $1,111.70.
The dollar crossed $1.50 versus the euro, reaching a two-week low, and approached its lowest level in 15 months.
The greenback fell to a three-month low against the pound.
$ The S&P 500 closed 0.3% higher on Friday, up 3.2% for the week, after a disappointing October NFP report signaled continued strong productivity growth and confirmed expectations of a prolonged period of an extremely accommodative Fed
$ The US yield curve ended little changed with 2/10s at 266bps, after the market priced in a low fed fund rate for longer; US 10yr rates fell back below the 3.50% mark; 2yr yields fell back towards the early October low of 0.833%, settling at 0.84% in NY
$ The DXY dollar index jumped to 75.98 in the initial post-NFP market reaction on a reversal of short dollar positions in the initial, but lower US carry rates drove investors back towards yield, driving the DXY index down to 75.5 in NY, 75.2 in Asia
$ Gold reached a new high of $1,108.60oz on Fed liquidity expectations, but oil fell to $77bbl as real economy optimism wanes
G20 G20 finance ministers agreed to keep global stimulus in place as the global recovery remains uneven and dependent on record fiscal and monetary support; proposals about an international levy on banks to fund future bailouts failed to gain support
$ St Louis Fed Bullard: solid recovery is needed before policy tightening; the outlook for inflation is highly uncertain
€ ECB’s Gonzalez-Paramo: exit does not mean rate hikes; focus is on gradually phasing out liquidity above normal 1-week MROs
€ ECB’s Bini-Smahi: recovery too dependent on stimulus; the economy is at a “very delicate moment” for recovery
$ US October nonfarm payrolls fell -190k, confirming the downside bias that we looked for versus the consensus projection of -175k; weakness was broad-based across manufacturing, construction, public and private services; the “bright spot” was a 35k rise marginally attached workers in business services
$ The US October unemployment rate rose 0.4 percentage points to 10.2%, a 26-year high
$ US average hourly earnings remained subdued at 2.4%YoY in October; the workweek stagnated at a 45yr low of 33hrs
$ US wholesale inventories fell for a 13th consecutive month in September, but declined at the slowest pace since January, down 0.9%MoM versus -1.3% in August; the inventory/sales ratio fell to 1.18 from 1.20 in August
$ US consumer credit contracted by $14.8bn, or -7.2%YoY in September, compared with -$9.9bn (-4.8%) in August; reflecting broad-based declines across both autos and credit card loans, reinforcing the de-leveraging theme in the real economy
€ German factory orders rose for a seventh consecutive month, up 0.9%MoM in September versus a revised gain of 2.1%MoM in August (initially +1.4%)
£ UK producer input prices (PPI) rose 2.6%MoM in October reflecting a sharp increase in fuel and materials prices; output prices rose 0.2% on the month but excluding energy & food costs, core prices jumped +0.3%MoM after a gain of 0.5% in September
The euro gained against the yen and the dollar before European reports today that may add to signs the economy is recovering, boosting demand for higher-yielding assets.
The dollar declined against 12 of its 16 major counterparts after the Group of 20 governments agreed to keep stimulus measures and remained silent on the greenback’s decline this year.
New Zealand’s dollar gained as Auckland-based Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, today raised its forecast for milk prices by 19 percent amid growing global demand.
Fonterra accounts for about 40 percent of the global trade in butter, milk powder and cheese and sells products in more than 140 countries.
Dairy prices are one of the fundamental drivers of the New Zealand dollar so with that on board we’ll see more support for the kiwi this week.
The euro gained to 134.31 yen as of 11:40 a.m. in Tokyo from 133.45 yen in New York on Nov. 6.
The euro rose to $1.4902 from $1.4847. It earlier climbed to as high as $1.4907, approaching its strongest since Oct. 27. The U.S. currency traded at 90.13 yen from 89.88 yen.
The euro strengthened as a Bloomberg News survey of economists showed German industrial output probably expanded 1 percent in September, a second month of gains. The Economy Ministry is set to release the report in Berlin.
The dollar tumbled versus the yen on Friday as renewed pessimism about the global economy in the wake of a troubling report on the US jobs situation fueled a move from riskier currencies to the safe haven yen.
Unemployment soared above the psychologically important 10%, a sign that this summer’s economic growth has yet to translate into a stable jobs situation.
The dollar dropped versus the yen as traders bet the Japanese currency was a better safe haven play than the world’s reserve currency. The buck slipped to 89.60 yen, down from a weekly range near 91.
Meanwhile, the dollar was stable versus the euro, holding near 1.4850. Back in October, the dollar hit a yearly low of 1.5059, back his since found support as risk appetite has waned.
The back firmed up a bit versus the sterling before returning to its pre-jobs report level near 1.6600. The pair has been stuck between 1.5700 and 1.6700 for the last few weeks, with the dollar easing to the lower end of that range of late.
The buck spiked higher versus its Canadian counterpart, taking back losses from earlier in the week. The buck improved to C$1.0750, staying well away from October’s yearly low near C$1.0200.
The Canadian employment situation took an unexpected turn for worse in October, pushing the unemployment rate to 8.6%. The data cemented expectations the Bank of Canada will keep interest rates low for the time being.
Here is a snapshot of the financial markets at closing time:
Have a nice week end 
Gold prices broke past the $1,100 per ounce mark for the first time on Friday as a dismal jobs report led traders to the safety investment.
December-stamped gold rose to $1,095.70, up $6.40 on the session. Prices reached as high as $1,101.90 earlier in the session.
The unemployment rate jumped to a 26-year-high of 10.2 percent in October from an unrevised 9.8 percent in September.
The unemployment rate had been expected to show a more modest increase to 9.9 percent.
The Labor Department report showed that non-farm payroll employment fell by 190,000 jobs in October following a revised decrease of 219,000 jobs in September.
Economists had expected a decrease of about 175,000 jobs compared to the loss of 263,000 jobs originally reported for the previous month.
The October NFPs came in broadly as we expected, at -190k.
For a notoriously volatile series this is about as close as it gets, but the key significance in today’s report is the disappointment versus the consensus NFP forecast and the spike in the unemployment rate through the 10% psychological threshold which have challenged the excessive cyclical optimism priced in capital market risk asset valuations and triggered bullish flatteners in the UST yield curve.
In forex, the shock from the data on equity valuations and the rush to lock in long US yields triggered a reversal of short dollar positions in the initial market reaction, but the implications from the data are ultimately dollar negative as they provide justification for the Fed’s strategy of exceptionally low rates for longer.
Gold rose to a new record high of $1,098.50oz in the wake of the payrolls report which suggests that we are not alone in that assessment.
The unemployment rate hit the 10% mark in October, also as expected, jumping to 10.2%, the highest since Apr’83, from 9.8% in the previous month.
Consensus was looking for a 9.9% print. The special unemployment rate, which includes discouraged workers and those working part-time for economic reasons, jumped by a wider margin of 5/10ths of a percentage point on the month to 17.5%.
The broad unemployment rate remains on track to reach our “depressionary” 20% forecast in early 2010, indicating that even as the economy has stopped contracting, the current level of activity remains consistent with widening spare capacity, which will maintain disinflationary pressures and warrant a low fed fund rate for longer.
This reinforces our forecast that even if positive growth figures are sustained into next year, the Fed’s liquidity exit strategy is likely to be much more gradual and protracted than the market expects and rate hikes in the US, the Eurozone and the UK are not on the horizon for 2010.
Another key implication from today’s report comes from the moderating trend of improvement in the monthly NFPs data, consistent with the signals from the private sector ADP survey and the negative turnaround in recent consumer confidence surveys.
Both the NFPs and the household survey signalled stabilisation in the pace of improvement in monthly job losses, which conflicts with assumptions of a near-term transition towards positive payroll figures built into "V”-shaped recovery models.
Furthermore, today’s backdated revisions to the BLS previous months’ data suggest that the trend of moderation in monthly job losses culminated in August (-154k, which was the smallest since Jul’08), following the launch of the “Cash for Clunkers” program. This implies that the impact of this fiscal stimulus on the labour market has peaked.
As expected, the US labour figures remain consistent with strong productivity growth into Q4’09. Aggregate hours worked fell at a 3.1% annualised rate in the three months to October, little changed versus Q3. In combination with positive output activity indicators, this suggests that the rate of productivity growth remains high, reflecting extremely conservative corporate cash management practices, in spite of increased producer optimism.
On balance, the weak labour figures challenged the cyclical optimism priced into capital market valuations which is based on expectations of a resilient recovery into 2010.
However, they have at the same time defied investors’ liquidity pessimism about an early withdrawal of the Fed’s stimulus in 2010, signalling ongoing deleveraging in real economy balance sheets.
Expectations about continued Fed support for market liquidity may well underpin speculative bids in risk assets based on the dollar carry trade, given investors’ recent tendency to buy into dips.
However, looking out, as long as companies focus on strong productivity growth to maintain internal liquidity in a challenging credit environment, the risks of a prolonged period of depressed economic activity and a “liquidity trap” remain high.
The Reserve Bank of Australia boosted its forecasts for economic growth for the coming year and indicated more interest rate increases are coming.
The RBA issued its quarterly Monetary Policy Statement Friday in Sydney.
The central bank’s forecast of GDP growth was expanded to 1.75 percent to the end of calendar year 2009, compared to its previous forecast of 0.5 percent growth.
The RBA said it projects growth in 2010 will rise to 2.25 percent for the year to June and 3.25 percent by the end of 2010. The bank’s August forecast predicted a growth rate of 1.0 percent to mid-2010 and 2.25 percent for full 2010.
On the future of interest rates, the RBA strongly hinted that more rate hikes were on the horizon, following increases of 0.25 percent at each of the last two monthly meetings.
"The board has judged it prudent to lessen the degree of monetary stimulus that was put in place when the outlook appeared much weaker," the statement said. "The cash rate remains at a low level, and a further gradual lessening of monetary stimulus is likely to be required over time if the economy evolves broadly as expected."
The RBA also said it expects inflation to continue to moderate, in the wake of a slowdown in wage growth and lower prices for imported goods. Underlying inflation, which excludes volatile items, is expected to drop to 2.25 percent by the end of 2010 from a projected 3.25 percent at the end of 2009.
The bank previously estimated 2.0 percent CPI contraction for 2010 and 3.25 at the end of 2009.
The government reported underlying inflation at an annualized rate of 3.5 percent in the September quarter.
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