Currencies: USD/CHF at Crossroad

The dollar rose on Tuesday as risk sentiment dropped. Investors worried about the strength of the global economic recovery. The World Bank said the global recovery is fragile and government should not reduce fiscal stimulus yet. US industrial production rose less than expected and the month-on-month core PPI unexpectedly declined. The S&P 500 rose 1.02 to 1,110.32. The yen fell. Japan’s tertiary industry activity index unexpectedly decreased. The euro declined after European Central Bank President Jean-Claude Trichet stated that a strong dollar is in the world’s best interest and Federal Reserve Bank Chairman Ben Bernanke’s comment yesterday was very important. The EMU trade balance improved as exports rose. Sterling fell modestly; the fall was limited by stronger-than-expected UK inflation. The Canadian and Australian dollars fell but pared losses as commodity prices reversed earlier losses. Reserve Bank of Australia minutes increased speculation the RBA will keep interest rates unchanged at its next meeting in December.

US Recession Is Technically Over

The worst US recession since the 1930s is technically over. However, it is difficult to determine the exact date of the end of the recession as economic indicators are mixed with personal income and employment data still weak. The Globicus coincident index, while indicating the recession ended in June or August, has still not bottomed in a clear way.

Globicus US LEI: No Double-Dip Recession and Job Growth in Sight 

There are no signs of a double-dip or W recession in the US. The Globicus/qEcon Research short leading and long leading indexes continue to improve, suggesting that the US economic recovery is on track and economic conditions should progress considerably by the end of Q3 2009. The overall leading economic index’ growth rate reached 11.5 in October, its highest level since the end of 1981-82 recession. Both the short and long leading indexes’ growth rates were strongly positive in October, at 11.2 and 11.7, respectively, indicating the ongoing US economic expansion is intact for at least the next 6-9 months. Meanwhile, the coincident index, used in determining the length of the recession, has been flat since the early summer. The index made a low in June, rose slightly in July, fell back to the June low in August and rebounded modestly in September. The coincident index’ growth rate, since hitting a low of -9.3 in April, had steadily risen, to -5.0 in September. This indicates the recession may be officially declared over in August. It could also be possible in June, but heavy job losses that month may prevent the Dating Committee to choose June. US GDP rose at a 3.5% annualized rate in Q3 2009, the first expansion in more than a year, and will likely grow at a 4-5% range in Q4.

US Macro: October US Industrial Production

US industrial production increased a smaller-than-expected 0.1% m/m in October, a fourth consecutive monthly gain, after a downwardly revised 0.6% m/m advance in September, according to IP data from the Federal Reserve with the October IP index standing at 98.6.

Europe Macro: September Eurozone Trade Surplus

The eurozone seasonally adjusted trade surplus unexpectedly widened to €6.8 billion ($10.1 billion) in September from an upwardly revised €2.2 billion in August, according to figures from Eurostat.

Asia Macro: Japan's Preliminary Q3 2009 GDP

Japan’s GDP expanded at an annualized 4.8% rate in Q3 2009, beating expectations, after an upwardly revised 2.7% pace in Q2, preliminary Q3 GDP data from the Cabinet Office showed, registering a second consecutive expansion after Japan’s deepest postwar recession.

Equities: Daily US Stocks

Major indexes are in strong uptrends. However, stocks are overbought and need to consolidate gains.

Fixed Income: Credit Spreads Indicate Recovery

Treasury interest rates have risen off their lows, credit spreads have narrowed and interbank rates have declined, indicating the financial panic is over and the economic outlook is improving.

Commodities: Daily Commodities

Commodities have bottomed and are moving higher.

Canada's LEI Up 1.1% m/m in September

Canada’s leading economic indicators index rose a more-than-expected 1.1% m/m to stand at 220.2 in September, a fourth consecutive monthly gain, after an upwardly revised 1.2% m/m advance in August, LEI data from Statistics Canada showed, signaling the Canadian economy is recovering.

UK LEI Signals UK Economic Recovery

The UK leading index increased from -2.9 in February to -0.5 in March, signaling a UK economic recovery is in sight.

Japanese LEI Rises for 7th Straight Month in September

The Japanese leading economic indicators index, a measure of future economic activity, advanced to 86.4 in September, a seventh straight monthly gain, from 83.2 in August, according to preliminary September LEI data released by the Cabinet Office.

Australia's LEI Shows Pace of Australian Economic Recovery Has Improved Remarkably

The annualized growth rate of the Westpac–Melbourne Institute leading economic index rose to 1.7% in August from -1.0% in July, supporting “Westpac’s forecast that GDP growth in Australia will increase from 1.5% in 2009 to 4% in 2010,” Westpac Banking Corp. and the Melbourne Institute reported.

A Primer on Deflation

In the WWII period, low inflation did not induce fears of deflation because economists believed the institutions created by the Keynesian revolution had a bias toward inflation. After more than 50 years of absence, deflation has now reappeared on the agenda as something to worry about. So what is deflation? Deflation is defined as persistent declines in the general price level.