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Weekly Forex Fundamentals | Written by BHF-BANK | Dec 07 09 11:07 GMT |

(Week of 7 to 13 December 2009) Trade deficit (Oct): narrowing slightly after sharp deterioration Retail sales (Nov): increasing further partly due to higher car sales UMI consumer sentiment (Dec): still at depressed levels despite further improvement The downward trend in consumer credit has not slowed down significantly yet: after a fall of $41.6bn in Q2, consumer credit dropped by $37.9bn in the 3rd quarter. We forecast that consumer credit will have gone down sharply again by about $11.0bn in October. The liquidation of inventories is slowing markedly, and thus inventories could have the biggest impact on GDP growth in Q4. It is already known that factory inventories actually increased by 0.4% mom after a 1.3% decrease the previous month. Wholesale inventories could have gone down by 0.4% mom in October, and total business inventories by a mere 0.1% mom. The trade deficit widened markedly by $5.6bn in September, as petroleum imports jumped 20.9% mom, which was only partly due to higher prices. Imports of nonpetroleum goods also went up noticeably by 4.4% mom, thus more than compensating for the 2.9% mom increase in exports. We expect oil imports to have corrected downward somewhat. But due to the surge in China's trade surplus and the economic recovery, total imports could have nonetheless remained elevated. Given the high level of the ISM export orders component, however, exports could well have gone up again too. All in all, we expect the trade deficit to have narrowed slightly to $36.0bn in October. Initial jobless claims fell again unexpectedly from 462k to 457k, lowering the 4-week moving average for the 13th consecutive week, to 481.3k. Jobless claims are on a clear downward trend, but the latter could have been exaggerated in recent weeks because of favourable weather conditions. We thus forecast that initial jobless claims will have remained unchanged at best in the week ending 5 December. The Congressional Budget Office (CBO) estimates November's budget deficit at $115bn - $10bn less than a year ago. Although regular tax receipts were lower than in November 2008, one-off payments from the Federal Reserve System to the Treasury will have offset these declines. Import prices are likely to have increased significantly by about 1.5% mom in November, because oil prices went up by about 12% mom in the statistically relevant first third of the month. At about 3.0%, the annual rate could turn positive for the first time since October 2008, as energy prices are no longer dampening inflation but are much higher than a year ago. Retail sales could have risen significantly again in November, by about 0.8% mom. Vehicle sales increased unexpectedly by a good 5% mom, and the beginning of the holiday season was reported to have been slightly better than in the previous year. In addition, markedly higher gasoline prices are likely to have had a positive impact. However, nominal sales could have been dampened by heavy discounts. Despite the rise in retail sales, personal consumption is likely to contribute much less to GDP growth in Q4 than in Q3, due to high unemployment, credit constraints and wealth losses. The University of Michigan's (UMI) final November consumer sentiment was revised up from 66.0 to 67.4, indicating that late respondents were less pessimistic. Given that the weekly ABC consumer comfort poll has increased further to the highest level since the end of August, we predict that UMI's preliminary December consumer sentiment will have recovered to 69.0, which would still be below the October level but close to the level before the financial crisis intensified in autumn 2008. 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