Yen Surges on Fear of Recession in Global Economy

The Japanese yen is sharply higher in European session following news that China's Manufacturing PMI tumbled sharply from 44.6 to 38.8 in Nov, fueling worry that China's economy is deteriorating faster than expected. Risk aversion dominates further after Eurozone PMI manufacturing index was unexpectedly revised down while UK PMI manufacturing index came in much worse than consensus. USD/JPY dives sharply to as low as 93.61 and is set to take out 93.55 to resume the whole decline from 100.54. Weakness is also apparent in EUR/JPY and GBP/JPY and both should be targeting retest of Nov's low of 116.47 and 137.62 respectively. Most major currencies are dragged down by respective yen crosses and tumble against the greenback. In particular, GBP/USD's break of 1.5178 minor support is taken as a signal the corrective rebound from 1.4557 has already completed at 1.5534 and further weakness should be see to retest this low. On the other hand, EUR/GBP rebounds strongly after drawing support from mentioned cluster fibonacci level at 0.823/24.

Germany retail sales unexpectedly fell for the second month by -1.6%, compared to consensus of 0.5% recovery, in October while September figure was revised from -2.3% to -1%. On annual basis, retail sales for Europe's largest economy also dropped -1.5% and September figure was revised from 1.2% to 2.4% . Although unemployment rate in Germany was still relatively low compared with it counterparts, consumer confidence was damped and saving rate was peaked in 14 years. Global economic crisis reduced spending desires for consumers.

Switzerland's SVME PMI plunged by a greater extent than economists expected. The index decreased to 35.2 from last month, much lower than consensus of 44.5. This is the third month in a row of contraction and the biggest drop among the three. Euro-Zone PMI surprisingly revised down to 35.6 (Oct: 42.9), compared with preliminary figure of 36.2. This is the lowest figure since the index began 11 years ago and the 6th month that the manufacturing index stayed below 50. Indicating deterioration in the sector, readings for manufacturing output, new orders, employment, backlogs, quantity of purchases and new export orders are all at record lows. As a geographic breakdown, the German November manufacturing PMI was revised down to 35.7 from 36.7. In October, the reading came in at 42.9. Concerning the components, both output and orders were revised down. The data increased pressure for the ECB to cut interest rate more aggressively on Thursday's meeting.

November Manufacturing PMI for the UK also dropped more than expected to 34.4 (consensus: 39.2). This is the 7th straight month that the index showed a contraction in the nation's manufacturing sector. Readings of output, new orders, employment, backlog of work and quantity of purchases were all at historical lows. October's data was also revised down to 40.7 from 41.5.

Later today from US, ISM Manufacturing index is expected to stay below 50 for the fourth consecutive months and continue to fall to 38.4 from 38.9 due to softening in factory activities. Price paid component has been dropping sharply from Jun's peak of 91.5 and is expected to extend the decline from 37 to 33 in Oct. Employment component dived steeply to 34.6 in Oct and would likely remain deeply below 50. Construction spending should weaken further by -0.9% in Oct, down from -0.3%. Markets will also pay attention to speeches from Fed Bernanke and Fisher and Treasury Paulson.

Another main focus will be GDP in Canada. Economists forecast growth of annualized 0.8% from 0.3% in Q2. The growth should not be taken as indicator that the Canadian economy has bottomed because the Q3 data mainly reflected the period before financial crisis worsened.

Economic Indicators Update