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Weekly Forex Fundamentals | Written by BHF-BANK | Nov 23 09 11:35 GMT |

(Week of 23 to 29 November 2009) Existing and new home sales (Oct): up due to higher affordability and tax credit rules GDP (Q3 2nd estimate): downward revision Consumer confidence indicators (Nov): slight improvement after sharp drop Durable goods orders (Oct): up again PCE core deflator (Oct): close to the lower end of the Fed's comfort zone Existing home sales jumped by 9.4% mom in September, and they could have continued to increase in October: as the graph illustrates, pending home sales tend to lead by one to two months, and given their sharp upward trend and their rise by about 12% in the last two months, we forecast that existing home sales will have increased by about 5% mom to 5.85m in October. The higher affordability and particularly the tax credit rules for firsttime home buyers have been boosting sales since spring. Contrary to existing home sales, new home sales declined by almost 4% mom in September. However, we expect them to have recovered somewhat to 420k in October. This would not only be the highest level so far this year but also the first time since November 2005 that they were higher than the previous year. According to the first estimate, Q3 GDP grew by 3.5% qoq annualised, following four quarters of sharp declines. Personal consumption contributed the most to growth in the summer months, particularly because of higher car sales due to the “cash for clunkers” programme. The smaller depletion of inventories also had a very positive impact, and residential investment rose for the first time after 14 consecutive quarterly declines. However, the government pointed out that the fiscal measures had boosted growth by 3 to 4 percentage points. The second GDP estimate for Q3 could show a slight downward revision to 3.0% qoq annualised: revised retail sales figures revealed a larger decline in September, and the trade deficit was wider than initially estimated. But, given the unexpected increase in September retail inventories, the growth contribution of inventories is likely to have been slightly higher. Consumer confidence, which had already been on a relatively low level, plummeted in October, from 53.4 to 47.7. The main reason was probably the unfavourable assessment of labour market conditions, which plunged to a 26-year low. After the unemployment rate soared to 10.2%, the University of Michigan's (UMI) preliminary November consumer sentiment also fell further by 4.6 points to 66.0. However, the weekly ABC consumer comfort poll improved in the first three weeks of November, and jobless claims have gone down to the lowest level so far this year. We thus predict that consumer confidence will have increased slightly to 49.0. UMI's final November consumer sentiment could also have risen marginally to 67.0. The FOMC minutes of 4 November are likely to confirm that the majority of committee members still consider it warranted to maintain the fed funds rate at exceptionally low levels for an extended period, given low resource utilisation rates, subdued inflation and stable inflation expectations. There will have been some discussion about the timing of exit strategies, and some members might have stated that rates would have to be raised if inflation expectations increased noticeably, even if unemployment was unacceptably high. But most members will have agreed that raising rates too soon could endanger the still fragile economic recovery. Thus the FOMC is likely to maintain its expansive monetary policy stance in the December meeting. Personal income remained stable in September, after having increased marginally by 0.1% mom in July and August. Average hourly earnings went up by 0.3% mom in September, but this is likely to have been cancelled out to some extent by the drop in aggregate working hours.We thus expect personal income to have risen by a mere 0.1% mom in October. Given the 1.4% mom increase in retail sales, which was almost entirely due to a rebound in car demand, we forecast that personal spending will have gone up by about 0.6% mom in October. We expect the PCE core deflator to have risen by 0.1% mom only in October, just like core CPI. The annual rate would thus remain at 1.3%, close to the lower end of the Fed's comfort zone (1-2%). The low level of core inflation measures and a 26-year high in the unemployment rate suggest that the Fed is in no hurry to end its zero-interest rate policy. Durable goods orders could have posted a moderate increase of 0.3% mom in October: according to Boeing, aircraft orders went down from 20 to 14, and the decline in car production indicates that vehicle orders could have dropped too. Given that the ISM new orders component is still a relatively high 58.5, we predict that durable goods orders ex transportation will have increased by 0.8% mom. The 4-week moving average of jobless claims has improved for 11 consecutive weeks, falling to 514k, as opposed to a peak of 659k at the beginning of April. We predict that jobless claims will have gone down moderately from 505k to 500k in the week ending 21 November. BHF-BANK http://www.bhf-bank.com This report has been prepared by BHF-BANK Aktiengesellschaft on behalf of itself and its affiliated companies (together "BHFBANK Group") solely for the information of its clients. 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