Improving German and Swiss Fundamentals Create Tough Decisions For Policy Makers

Fundamental Headlines

• Job Cuts Loom as Stimulus Fades – Wall Street Journal
• RBA Raises Rates – Wall Street Journal
• Dubai ruler seeks to calm jittery markets - Financial Times
• Japan's Central Bank to Pump Cash Into Economy on Lower Prices, Higher Yen – Bloomberg
• China Manufacturing Grows at Faster Pace, Helping Asia Lead World Recovery -Bloomberg


EUR/USD –  Europe’s unemployment rate in October remained at 9.8% which was the highest in eleven years. However, it was unchanged as the month’s prior was revised higher from 9.7%. Meanwhile, the number of unemployed Germans fell by 7,000 with the jobless rate dropping to 8.1% from 8.2%. The improving labor picture in the region’s largest economy could be a sign that broader improvement is ahead. Indeed, October saw Germans open their wallets leading to the first rise in retail sales in three months. The 0.5% rise in overall spending was led by a 8.5% in clothing purchases which offset a 2.4% reduction in automobile sales.  An upward revision to the final German PMI reading to 52.4 from 52.0 added to the signs that growth is sustainable. Therefore, we may start to see the ECB take a more hawkish stance heading into 2010 as it is widely expected that the central bank will begin tightening next year. To discuss this and other ideas visit the EUR/USD forum.

USD/CHF – Swiss gross domestic product rose 0.3% in the third quarter as the economy returned to growth ending the current recession. A 2.6% increase in exports, a 1.3% rise in government spending along with an improvements in household spending helped end a yearlong contraction. An improving global economy has helped increase demand for Swiss goods which was evident by the improvement in the November SVME-PMI reading.  The forward looking manufacturing gauge rose to 56.9 from 54 as the backlog of orders jumped to 66.5 from 57.7. Additionally, the employment component advancing to 45.7 from 42.4 which could be a signal that optimism is rising that growth is sustainable. However, the strength of the Swiss franc remains a concerns for policy makers and may leave them on hold for the foreseeable future.