“I don’t think the housing crisis is over,” said Mark Zandi, chief economist with Moody’s Economy.com. “I think we’re going to see another leg down.”

An index measuring November homebuilder confidence came in lower than the median forecast of 45 economists this week. The Commerce Department on Nov. 18 said residential building dropped 11 percent in October to the lowest level since April’s all-time bottom.

“Market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of available homes, increasing unemployment, tight credit for homebuyers and weak consumer confidence,” said Donald R. Horton, chairman of D.R. Horton Inc., the nation’s second-largest homebuilder. The company today reported a fourth-quarter loss of $231.9 million on $1 billion in sales, missing analysts’ estimates.

Bloomberg

“The dollar’s upward moves are capped,” Nihei said yesterday. “Plus, the 5-day moving average is heading downward. So are the 20- and 90-day moving averages.”

Bloomberg

“Not all our liquidity measures will be needed to the same extent as in the past,” Trichet said at a conference in Frankfurt today. “Any non-standard measure whose continuation would pose a threat to the achievement of price stability must be undone promptly and unequivocally.”

Bloomberg

BBC News

The US$ is stronger in the O/N trading session. Currently it is higher against 14 of the 16 most actively traded currencies in a ‘whippy’ trading range.

Yesterday’s US data received mixed reactions. Initial and continuous claims managed to print close to expectations (+505k and +5.611m respectively). But, the eye popping story was had with the extended and emergency prints. They both aggressively jumped higher even before Obama’s extension of jobless benefits attempts to recapture those who have been unemployed the longest. Extended benefits were up +17.7k (+540k), while emergency benefits skyrocketed by +101k to +3.6m. Disappointingly, the duration of unemployment continues to rise (+26.8 weeks). On the face of it, jobless claims seemed to have temporarily peaked, however, wait until the New Year where they should start rising again once legislation to extend jobless benefits kicks in.

Yesterday’s US Philly Fed was one of those pleasant surprises. The index advanced to 16.7 this month vs. the 11.5 in Oct. (the highest level in 2½-years). Market expectations were around 14.5. Digging deeper, the sub-components were better than the headline (one does not accumulate the components to calculate). New orders advanced for the fifth time in 6-months to +14.8 from +6.2. Shipments rose to +15.7 from +3.3 in Oct. The employment components improved as well and rose to -0.5 this month vs. the Oct. reading of -6.8. A real healthy surprise was the rise in the average workweek, which managed to print +2.0 from -4.7 the previous month. More importantly, it was the 1st positive reading in nearly 2-years. It’s a pity that this is not translated into the weekly jobless claims data! As expected from this week’s data, inflation remains a non-event. The prices paid component slipped to +14.9 from +21.3 in Oct., so, as to be expected, the Fed should remain on hold for an ‘extended’ period of time with firms keeping prices low to retain market share.

As expected Japan kept rates on hold last night and again highlighted their deflationary concerns. But, it was China who made the headlines, albeit, in a ‘smaller’ circulation newspaper, The People’s Daily Overseas. The article rejected the call for a Yuan appreciation and said that ‘the US pressure on China to raise the value of its currency amounts to Washington abdicating responsibility for ballooning deficits that would impede global economic recovery’. The article said it is ‘Washington’s attempt to distract attention and shirk responsibility and make other countries, including China pay the bill’. Now, one can expect open dialogue on the state of China’s artificially hyped-economy as we comment on the various asset classes who seem to be on the verge of collapse. In the end, as per usual, Chinese growth cannot rely solely on domestic demand. It requires the rest of the world to consume!

Food for thought, PIMCO’s Bill Gross brings up a good point, ‘systemic risk’ of new asset bubbles is rising with the Fed keeping interest rates at record lows. He indicated that the Fed is trying to reflate the US economy. What’s that? It’s ‘the process that involves lowering short-term rates to such a painful level that investors are forced or enticed to term out their short-term cash into higher-risk bonds or stocks’. It’s no wonder that 3-month US T-bills are trading negative!

The USD$ is currently higher against the EUR -0.11%, GBP -0.36%, CHF -0.14% and lower against the JPY +0.20%. The commodity currencies are weaker this morning, CAD -0.12% and AUD -0.17%. Growth, lack of growth and questionable growth weighed on higher yielding assets yesterday. As expected the loonie was not spared as the currency declined for a third consecutive day. Investors concerned actions sold global equities and commodities, which inversely supported the greenback and pressurized all growth currencies. Technically, the market is lacking clear direction as we head into next week’s holiday shortened trading week. We remain in a tight 3c trading range. Capital Markets want to test Governor Carney’s intervention and quantitative policies, the policies that the BOC believes need to be implemented to aid the currency from appreciating too fast that it may have longer term effect on Canadian economic growth. Currently, within this tight range, intraday traders are been squeezed daily out of the core positions, whether it’s commodity prices pushing the loonie or risk aversion. Dealers continue to be better buyers of the CAD on USD rallies as the buck’s bear trend becomes well established, for now at least!

It will bee a losing week for the AUD, the first time this month, as reduced risk appetite and uneasiness across global equity markets is limiting gains in growth-sensitive currencies. Over the last 12-months, the AUD has managed to appreciate just above 50% vs. the greenback as the RBA became the first Cbank to hike rates twice this year. This week’s weaker domestic fundamental reports combined with mixed data out of the US has pressurized global equities and promoted risk aversion trading strategies. If you combine that with the RBA minutes implying that three straight lending rate increases may not be on the cards has futures traders unwinding bets that Governor Stevens would tighten monetary policy again in two-weeks. He said that the pace of further rate increases ‘remained an open question’. However, bigger picture, the currency is well supported by commodity prices and expects dealers to remain better buyers on ‘deeper’ pullbacks (0.9133).

Crude is lower in the O/N session ($77.35 down -11c). What ever happened to the bullish fundamental reports for crude prices this week? Yesterday, for the first day in four, the commodity managed to decline as investors questioned global growth prospects and its pace by selling equities. For most of this week crude prices edged higher after the weekly EIA report confirmed the weakness of the previous day’s soft API print (-4.37m) . With US crude stocks falling by more-than-expected last week, and the dollar trading under pressure, had the market temporarily penetrating that psychological $80 a barrel level. Repeatedly over the last few weeks the $80 handle remains a stubborn resistance point, again the market attempted and again it has failed despite US crude inventories falling by -900k barrels last week vs. market expectations of a +300k increase. Confirming their support for bullish prices, both gas and distillate stocks also fell, by -1.7m and -300k barrels respectively. With oil trading inversely with the dollar and positively with equities, buying interest in oil, like other commodities rose this week, but yesterday we witnessed a reversal in all asset classes. Again, justified by the markets reactions, we have come too far to fast. Demand destruction does not warrant elevated prices. OPEC will remain on hold next month because of concerns about tipping global economies back into contraction. To date the market has been wishy-washy within a $7 range with very little follow through. Do not be surprised if we cannot hold current levels again.

After Gold printed new record highs, risk aversion trading strategies has given the USD support. By default, with its inverse relationship to the currency thus far, speculators have pared some of this week’s winnings. The official ‘reserve’ currency managed to gain traction against most of its major trading partners as global equities came under pressure and eroded demand for higher-yielding assets in the O/N session. Expect the Bulls to continue to dominate all of the action and remain strong buyers on ‘any’ pull backs even with the dollar finding support from risk aversion this morning ($1,144).

The Nikkei closed at 9,497 down -52. The DAX index in Europe was at 5,742 down -25; the FTSE (UK) currently is 5,306 up +39. The early call for the open of key US indices is lower. The US 10-year bonds eased 2bp yesterday (3.35%) and are little changed in the O/N session. All the action was on the front-end of the US curve yesterday. 2-year note yields dropped temporarily to their lowest level in over a year on concerns that the rally in higher-yielding assets has outpaced the prospects for economic growth. US refunding numbers for next week (2’s $44b, 5’s $42b and 7’s $32b) will make supply the main for factor a holiday shortened week. Expect the remainder of this week to see some selling of the curve as well as selling outright to make room for purchases. On deeper pull backs, the longer end of the US yield curve remains better bid as the ‘seasonal’s’ are calling for a flattening rally (363 spread 2’s -30’s) ahead of ‘month end index extension’.

“Risk is off,” said Firas Askari, head currency trader in Toronto at Bank of Montreal, Canada’s fourth-largest lender. “The U.S. dollar is bouncing across the board.”

Bloomberg

“It’s a risk-off day,” said Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “Equity markets are down, and in that kind of environment the dollar and the yen get bid.”

BBC News

The US$ is stronger in the O/N trading session. Currently it is higher against 15 of the 16 most actively traded currencies in a ‘whippy’ trading range.

A mixed bag of US data yesterday was not easily digested. Building permits (552k vs. 580k) and housing starts were both ugly prints for the construction industry. Starts managed to return to their lowest level since April (529k vs. 600k), after having flat lined for most of the summer. Analysts have been telling us repeatedly that the US housing remains ‘bloated’ with stock, and we all know that inventory levels have been the scourge of this recession and causing more builders to remain inactive. But once again, 500k new homes are being built, despite demand waning. Then there is the issue of shadow re-sale inventories, this data should be included as a more accurate reading on the current housing situation. Rather that the 28-week supply figure that analysts can conjure up under conventional calculations, including the shadow technique, supply would be close to 14-months. And we have not even included the sub-category of foreclosed and unlisted houses yet! Next spring will bring an end to the various home-buyers incentives and if you add the issues of mortgage rate resets, one can probably paint another ugly picture for the US housing market for a long time!

Both headline (+0.3% vs. +0.2%) and core (+0.25) US CPI came in slightly stronger than expected last month, pushing the year-over-year rate up to -0.2% for headline and +1.7% for core-inflation. Nonetheless, at these levels, inflation still remains subdued with only modest gains expected in the months ahead. The indexes for new and used cars both rose sharply and together they accounted for over 90% of the increase in the index for all items ex-food and energy. This week’s PPI and CPI data legitimizes the Fed’s ‘extended period of time’ for borrowing costs to remain on hold. Bernanke and his policy makers have a dual mandate, maximize employment and maintain price stability (nothing to do with the USD value), however with the unemployment rate continuing to worsen and evidence that inflation is contained, rates could well remain on hold until the end of next year.

The St. Louis Fed member, James Bullard was misinterpreted yesterday by Capital Markets. He said that ‘Policy rates are near zero in the US and the rest of G-7 countries, something not seen in postwar economic history’. That’s a true comment. However, he added ‘that interest rates may stay low for some time and went on to describe that ‘the FOMC did not begin policy rate increases until 2 ½ – 3-years after the end of each of the past two recessions’. Markets interpreted that summer 2009 ‘is’ the end of recession equals rate hike in 2012. Too simplistic! Bullard said ‘the FOMC will be heavily weighing concerns that stem from criticisms that the Fed kept interest rates too low for too long, contributing to the housing market bubble’. Now, that does not equate to 2012!

The USD$ is currently higher against the EUR -0.57%, GBP -0.39%, CHF -0.71% and lower against the JPY +0.31%. The commodity currencies are weaker this morning, CAD -0.52% and AUD -0.90%. After yesterday’s Canadian CPI numbers, seasonally adjusted or not, inflation is not an issue for Governor Carney. Seasonally adjusted headline CPI was up +0.4%, m/m, vs. the more often reported unadjusted figure of -0.1%. The BOC’s core-CPI was up +0.2%, m/m, vs. the seasonally unadjusted print of +0.1%. Core-inflation remains well contained and with the loonie to remain persistently strong, by default we can expect continued downward pressure on import prices giving us no inflation issues! On an unadjusted basis, energy and food prices fell -1.9% and -0.2%, m/m. That’s the second consecutive monthly decline for energy and the third decline for food prices which contributed to the overall non-seasonal monthly decline. The loonie had been pushed higher on the back of the general disdain towards the greenback despite Bernanke and Trichet’s futile attempts to talk up the dollar. Extended low borrowing costs will do that to you. Higher commodity prices consistently support the loonie. This month alone the CAD is the 5th strongest currency vs. its southern neighbor, the top four are also closely commodity linked. Technically, the currency is trading in a defined 3c-range of 1.04 to 1.07. Capital Markets want to test Governor Carney’s intervention and quantitative policies, the policies that the BOC believes need to be implemented to aid the currency from appreciating too fast that it may have longer term effect on Canadian economic growth. Currently, within this tight range, intraday traders are been squeezed daily out of the core positions, whether it’s commodity prices pushing the loonie or risk aversion. Dealers continue to be better buyers of the CAD on USD rallies as the buck’s bear trend is now well established.

Within sight of the 15-month highs earlier this week was too lofty a perch for the AUD. The currency has managed to weaken for a third consecutive day as weaker domestic fundamental reports combined with mixed data out of the US has pressurized global equities and promoted risk aversion trading strategies. Already this week the AUD has managed to pare some of this week’s gains after the RBA minutes implied that three straight lending rate increases may not be on the cards. After appreciating close to +4% vs. the buck this month, futures traders hastily unwound some bets that Governor Stevens would tighten monetary policy again in two-weeks. He said that the pace of further rate increases ‘remained an open question’. However, bigger picture, the currency is well supported by commodity prices and expects dealers to remain better buyers on ‘deeper’ pullbacks (0.9200).

Crude is lower in the O/N session ($79.15 down -43c). For a third consecutive day yesterday, crude prices edged higher after the weekly EIA report confirmed the weakness of the previous day’s soft API print (-4.37m) . With US crude stocks falling by more-than-expected last week and the dollar trading under pressure had the market temporarily penetrating that psychological $80 a barrel level. Crude inventories in the world’s largest energy consumer country fell by -900k barrels last week vs. market expectations of a +300k increase. Confirming their support, both gas and distillate stocks also fell, by -1.7m and -300k barrels respectively. Overall the two reports are bullish for prices. But, the weaker API report had set up yesterday’s market to expect the worse. With oil trading inversely with the dollar and positively with equities, buying interest in oil, like other commodities has risen. Is it sustainable? Some analysts believe we have come too far to fast, demand destruction does not warrant elevated prices. OPEC will remain on hold next month because of concerns about tipping global economies back into contraction. Commodity prices inverse relationship with the greenbacks value seems to be defying gravity over the last few months. Due to softer fundamentals this month, technically the market has once again aggressively got ahead of itself. To date the market has been wishy-washy within a $7 range with very little follow through above the $80 a barrel level. Do not be surprised if we cannot hold current levels again.

Records, records, records, not a day goes by without the yellow metal managing to record one it seems! Gold managed to climb to a new record yesterday as investors sought alternatives to a weakening dollar. Year-to-date the yellow metal has managed to appreciate +30%, aided by record low interest rates and quantitative easy policies of CBankers who have managed to depress the greenback and by default promote the yellow metal as the go to speculative investment. Expect the Bulls to continue to dominate all of the action and remain strong buyers on deeper pull backs even with the dollar finding support from risk aversion this morning ($1,135).

The Nikkei closed at 9,459 down -127. The DAX index in Europe was at 5,762 down -25; the FTSE (UK) currently is 5,328 down -15. The early call for the open of key US indices is lower. The US 10-year bonds backed up 3bp yesterday (3.36%) and are little changed in the O/N session. Treasury prices fell after the market disregarded Fed Bullard’s comments yesterday (see above). Today we will get to see the US refunding numbers for next week (2’s, 5’s and 7’s), making supply the main factor. Expect the remainder of this week to see some selling of the curve as well as selling outright to make room for a holiday shortened week of purchases. On deeper pull backs, the longer end of the US yield curve remains better bid for two reasons, firstly, the Fed will remain on hold and keep rates low for a considerable length of time and secondly, there is a natural foreign demand for US product. Analysts believe that ‘seasonal’s’ are calling for a flattening rally from here (359 spread 2’s -30’s) ahead of ‘month end index extension’.