South African Rand
Continuing to find major resistance
at the 7.0500 figure, the South African rand gained incrementally on the day
following the overnight’s economic results. For the month, producer prices advanced
far above consensus estimates, jumping 10 percent higher on the annualized
comparison. Continually suggestive
of inflationary pressures, the report was widely coupled with a wider than
expected trade deficit survey as increases in consumer spending helped to push
the difference to a record. For the
month, the trade deficit widened to an unprecedented ZAR12.943 billion, compared
to estimates of a ZAR 3 billion shortfall.
Indicative of rising consumer consumption, the figure poses a headache
for policy makers as it boosts the likelihood that rates will be tightened once
again in order to hopefully curb what is now noticeably uncontrollable
consumption. The notion has been
extended to include further rate hikes in the first quarter of 2007 as inflation
remains relatively supportive.
Additionally lending to the positive bias were equity market gains as the
benchmark index rose higher.
Jumping by 1.1 percent, the FTSE/JSE Africa All Share was higher, closing
at 23,949.95. The benchmark is now
higher by 32 percent on the year, as traders and investors continue to see
opportunity on wider yield possibilities in the economy. With the US already considering the potential for rate
cuts in the first quarter, a 44 percent probability according to futures
traders, deeper pockets are looking for higher rates in South
Africa.
The search for the 8.5 percent yield in the economy is helping to boost
demand for the underlying rand.
Mexican
Peso
No economic data for the currency
pair, no problem. The Mexican peso
continued its gains against the US dollar for the third straight session as
concerns over the inaugural ceremony tomorrow thinned. Although violence was witnessed over the
past several weeks, even as late as yesterday, markets are settling on the fact
that the transition will take place as planned with President-elect Felipe
Calderon taking on the responsibilities from the incumbent President Vicente
Fox. In addition, boosting the
Mexican peso on the day, were technically driven trades. With participants notably taking breaks
from the market, black box and system trades seem to be driving spot
action. Taking stops on momentum,
the lack of liquidity is also helping the underlying currency pair fall through
key support at the 11.0000 handle.
As a result, key support is only likely to stall further declines, with
barriers at the 10.9270 (20-day SMA) and 10.9175 (100 day SMA) providing some
near term assistance.
Nordics – Swedish,
Norway and Denmark
Gross domestic product was weaker in
Denmark for the quarter, falling from
the 0.8 percent expected to post a 0.6 percent rise. Bullish for the Krone, the report lent
some mild bearishness as underlying figures purported a different expansion
picture. Although expansion was on
the rise, private investment and consumption actually declined on the quarter,
suggestive that companies and the sector may be halting on a decrease in
demand. Likely reflective in
potentially lowered growth expectations, policy makers are inevitably going to
consider this aspect before considering any further rate hike increases,
contrary to what the masses had previously expected. It was a different story for the
Norwegian economy as credit growth figures slowed for the month. However, surprisingly bullish for the
currency was the fact that the volume of credit in the report actually increased
in comparison to the previous month.
This fact alone is reflective of the notion that consumers may have
disregarded the recent rate hike, continuing to amass debt in order to fit
consumption habits as employment prospects have improved once again. According to the nation’s labor
statistic agency, unemployment continued to decline, dipping to 2.1
percent. The lowest since 1985, the
unemployment rate continues to be reflective of a tight labor market, boosting
the likelihood that wages increases will continue to add to personal
consumption. As a result, rate hike
speculation is ticking up higher in line with a potential Riksbank next
month. However, a bulk of the
belief still resides with a move later in January or March. Separately, in Sweden, previous
retail strength will likely boost both GDP and PMI figures expected in the over
night. The likelihood is supporting
the Krona through key resistance figures at the moment, as bulls brace for test of the 6.8000
handle.
Hong
Kong
Dollar
Pulling back, traders began to unload
previously long HKD positions even as economic data favored the bidder. According to the Brunswick PMI survey,
manufacturing activity advanced yet again in the month of November. The fourth monthly advance, the
consecutive gains speak well for the economy and boost the prospects for further
appreciation of the underlying currency with expansion likely to increase. For the month, survey results rose to
56.3 as both new orders and output rose consistently for the fifth month
running. In addition, staff costs
was the only decliner as production also ticked higher. The survey ran in tandem with
money supply figures that continued to suggest inflationary pressures in the
Hong Kong economy. Rising for the month, the survey
advanced 9.3 percent on the M1 level in the annualized comparison as the two
other components rose in similar fashion.
Both reports should be coupled nicely with tomorrow’s retail sales
figures, which are expected to show further improvements. With production advancing, the labor
market has tightened, boosting wages and in turn helping to support consumer
spending. All things considered,
the Hong Kong economy is likely to reach earlier growth forecasts which are now
riding almost 4 times higher than the world’s largest economy, the
US, as exports and services continue
to bolster internal growth.
Subsequently, the Hang Seng rose on the day, gaining 179.55 points to
close at 18,960.48, as China related shares like
telecommunications company China Mobile lifted the broader
market.
Singapore Dollar
Continuing on the week’s momentum,
the Singapore dollar convincingly broke
through nine year resistance, lending the way for further advances in the
underlying currency. The advance
was despite comments released by the Monetary Authority of Singapore that growth
was expected to slow in 2007 as higher crude oil and a global slowdown are
expected to limit any gains in the Asian economy. Earlier estimates had pitted the country
to grow at a 7 percent pace.
However, taking into consideration the aforementioned, officials are now
forecasting a 4-6 percent pace of expansion. Although lower, the figures are still
optimistic compared to growth figures in more industrialized countries which are
expected to expand at a rate less than 3 percent for the year. Even more encouraging are the
expectations for inflationary pressures to remain tamed, further boosting the
potential for steady consumer spending heading into next year. Subsequently, interest in equity markets
continues to be reflective of the current market view as the Straits Times Index
continues to advance. Rising to
close at 2,838.53, the benchmark index jumped 0.4 percent higher, and remains up
21 percent on the year.
