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FX Summary: Asia

The dollar gained some ground back in the Asian trading session, after the sell-off NY but the move was seen as position-adjustment ahead of the all-important US non-farm payroll data. Fundamentals still have to be eyed as a factor that helped weigh on GBP, AUD and EUR however, with more job cuts announced in the UK, weaker commodity prices weighing on AUD, and the latest round of European data seen highly negative for the EUR. EUR/USD has already slipped off NY highs near 1.3800 to open in Asia at 1.3700, taking out stops under 1.3650 on the fall to 1.3633. GBP/USD held under 1.5200 much of the session after dropping below that level in early dealings. AUD/USD fell from early Tokyo levels of 0.7122 down to lows of 0.7056 before bouncing. Asia stocks were mixed with S. Korea and Tokyo stocks falling but Australian stocks higher. US treasury yields were little changed ahead of the jobs data. Oil and gold were higher during Asian trading with oil correcting higher after three days of losses. Median expectations for the jobs data are now for a -550K fall, widening from -500K earlier in the week on the ADP data with forecasts as deep as a -700K decline. NY traders say that they are hearing expectations by traders of -580K to -590K.

FX Update- Cable

Cable gapped lower amid dollar short covering, which resulted in a move from 1.5366 down to 1.5270 session lows. Liquidity is at a premium and exacerbating price action. In the most recent round of dollar buying it looked as if intraday accounts keyed off commodity market movement, with falls in oil, gold and copper driving movement. Meanwhile, EUR/GBP has found another bid after its pull back from 0.9500 extended to 0.9453, but looks poised to move back on a 0.9500 handle and re-challenge topside levels. EUR-GBP recorded a fresh all time high of 0.9556 in early N.Y. trade.

FX Update- EUR/USD

EUR/USD peaked at 1.3842, levels last seen on October 3, after taking out another round of stops at 1.3800. Good buying from a large U.S. account was noted from 1.3795, though after quickly moving to 1.3830, the pairing was pushed briefly back under the figure by rumored Asian name sellers. From there though, those who missed the boat on the initial move over the figure were waiting on the bid, and subsequent buying took the euro to its highs. Given the volume of stops cleared out on Tuesday, and the scope of recent EUR/USD gains, we suspect a case of sell-the-fact may kick in unless news from the FOMC is shocking in nature.

Vox Pop: Liquidity fragmentation: crisis or opportunity?

Liquidity is fragmenting across Europe. Should we panic? Or celebrate? Have your say in the second of our series of industry debates.

FX Update: European Outlook

Risk aversion came back with some sharpness after the US Senate rejected the automaker bailout plan, which has returned the USD, and more especially the JPY, back to a firmer footing. Remarks from the head of JPMorgan Chase that trading in the last two months had been "terrible", coupled with news of a further round of job cuts and Bank of America, have helped stoke an overall more negative feel in financial markets. There had been something of a disconnect between the nature of economic data releases and that of stock market performance around the globe over the last couple of weeks, and it always looked like the odds for sustained equity market gains were limited. Market participants will look to follow-up developments regarding the US auto sector, such as the possibility of Treasury's TARP package being used to give a cash injection to the car industry. Meanwhile today's slate of economic data releases, which feature eurozone production and a raft of US data, including retail sales, PPI, consumer sentiment, and inventories, are likely to reaffirm the recessionary picture in Europe and the US.

City AM's Morning Newspaper Round-Up

Nervous investors on Tuesday paid for the privilege of owning US government debt, pushing interest rates on three-month Treasury bills to negative levels for the first time in postwar history, reports the FT. The implied yield for three-month bills briefly traded at negative 0.01% - the first time that has happened since 1940, traders said. Ed Miliband, the Energy and Climate Change Secretary, appeared to be on a collision course with Britain's big power companies last night as he called for sweeping reforms to the industry, including greater state control and a retreat from the free market orthodoxy of the past two decades, reports the Times. Embattled entrepreneur David Ross is under mounting pressure to relinquish his board positions at Big Yellow Group and Cosalt after being forced to step down from two more high-profile jobs. Ross, a Tory donor, yesterday quit as chairman of bus and rail operator National Express and from Boris Johnson's 2012 Olympic committee. His departures followed the share scandal that forced him out of mobile phone retailer Carphone Warehouse on Monday, writes the Telegraph. Senior banking insiders fear that political demands for banks to ramp up lending to homeowners and small businesses will force the financial industry to return to the taxpayer for more support. The Â£50bn recapitalisation of Britain's eight largest banks was based on business models that assumed a small amount of loan growth. However, as the political clamour to extend lines of credit to small businesses has grown, top industry figures fear banks will have no choice but request more state money, writes the Telegraph. Global oil demand will collapse next year and commodities will not return to the highs they reached this summer in the foreseeable future, two authoritative reports said on Tuesday as they forecast a long and painful worldwide recession. The stark conclusions came as the World Bank's chief economist predicted that the world faced "the worst recession since the Great Depression". The US energy department said global oil demand will fall this year and next, marking the first two consecutive years' decline in 30 years, reports the FT. Countrywide, the UK's largest estate agency group, is to hold a Â£1.65bn three-day end-of-year sale, starting tomorrow. The owners of more than 7,500 properties have been encouraged to slash their prices by as much as 30 per cent - although some have trimmed by as little as 3%, writes the Times. Land of Leather abandoned talks with speculative bidders on Tuesday as it focused instead on raising enough cash to pay an impending Â£6m ($9m) rent bill. The lossmaking sofa retailer said last week that it had been approached by several putative bidders. But they offered "insufficient value to shareholders" reports the FT Primark's flagship London store delivered its biggest one-day of sales in the AB Foods-owned value fashion giant's 39-year history last Saturday, as further details emerged of its plans to conquer Europe. It is understood that the Primark store on Oxford Street delivered sales in excess of Â£600,000 on Saturday, reports the Independent. Alistair Darling's hopes that growth would resume in the second half of next year were hit yesterday by predictions that the recession could turn into a slump worse than that of the early 1980s. Experts said that the economy would shrink by 1% or more this winter as it emerged that British industry is contracting at the fastest pace since 1991, writes the Times.

AUD-Dollar Steady

Â AUD-USD held steady after RBA Governor Stevens said that he sees more scope for monetary and fiscal stimulus if needed. He would take into account economic data and past stimulus when considering rates, adding that past cuts and stimulus, along with a weaker Aussie would make a signficant difference over 2009. AUD-USD is changing hands around 0.6530, which is relatively close to its 0.6495 lows recorded earlier on in the European session. The pull back in Aussie came amid weaker European equity markets following a mixed out turn in Asia. Profit taking via the equity market influenced the higher yielding Aussie and should continue to dominate ahead. Today's speech from Stevens offered little new insight. The RBA remain open on further rate cuts, but may not move as aggressively after the recent round ofÂ cuts.

FX Update: Asian Summary

The dollar was mixed in Asian trading, garnering broad gains against the EUR, AUD, GBP and Kiwi, but falling against the USD/JPY. The inability of the Nikkei to hold morning gains was one factor seen weighing on USD/JPY and JPY crosses, though dealers report that trading was thin and probably exacerbated the moves seen on the currencies. News that the big three US auto makers were likely to get a $15 bln loan was seen by some as already priced into the market on Monday. Focus was then turned to the round of US job cuts announced in the last 24 hours and the corporate warnings on earnings that emerged in US after hours trading which saw DJIA futures ease 58 pts during the Asian session. US treasury yields remained heavy after the job and earnings news. Oil edged up near $44.00 but could not sustain gains, turning slightly negative into the afternoon with gold rising $3.10. USD/JPY, which traded a range of 92.60-93.06 much of the session, dropped to lows of 92.39 in the afternoon. Cable fell from late NY highs of 1.4958 to lows of 1.4823. EUR/USD eased from late NY highs of 1.2968 to lows of 1.2857. AUD/USD fell from late NY highs of 0.36684 to lows of 0.6546.

Preview: November Employment Report

â�¢ November Non-Farm Payrolls are expected to plunge 340k following a 240k drop in October â�¢ The Unemployment Rate is expected to grow to 6.9% in November from 6.5% in October The November Employment report is expected to reflect significant labor market deterioration, with job losses expected to exceed 330k following a combined decline of 524k jobs in October and September. An as expected November drop would reflect the first decline of more than 300k since Oct-01, when payrolls fell by 325k. The worse-than-expected November ADP data (-250k), combined with the startling jump in November Challenger Job Cuts (148.4%), suggest extensive downside risks to the November report. Potential bright spots are severely limited, as potential gains in government, education, and health employment arenâ��t likely to boost the headline data in a significant way. A good portion of analysts issued downward revisions to the forecasts following the abysmal round of employment data released Tuesday. Goldman Sachs now expected November job losses to touch 400k while Mitsubishi UFJ now expects a 470k drop. November Factory Employment is expected to drop 100k, which would be the first triple-digit decline since Jun-03 â�� even when factoring in the expected 35k boost from the concluded Boeing strike. Torrential declines in all major regional manufacturing indexes in November were capped off by the lowest ISM Manufacturing Index reading since 1982. The once-proud US services sector has also deteriorated significantly over the past quarter, with private service-sector jobs dropping over 290k in September and October. Service jobs are likely to fall further in November, reflecting extensive downside risks from the much worse-than-expected drop in the private sector-biased ADP report and record drop in the November ISM Non-Manufacturing Index.

City AM's Morning Newspaper Round-Up

The Bank of England is working on radical plans to inject cash directly into the economy - the nuclear option to be used only when interest rates approach zero, reports the Telegraph. Hundreds of thousands of borrowers will be denied the full benefit of yesterday's cut in interest rates because many banks are refusing to pass on the whole one-point cut to all mortgage customers, says the Times. Banks and building societies will be required to hold tens of billions of pounds more in highly liquid government bonds to ensure they are better equipped to withstand future panics by depositors, reports the Times. J Sainsbury has become the first company in Britain to sign an electricity supply contract directly with a generator, agreeing to take all the power from a new 6MW wind farm to be built near Glasgow, writes the FT. Leading figures from the UK biotechnology sector have called on the Government to invest Â£500m to rescue the industry, writes the Telegraph. The administrator of Woolworths has launched a massive fire sale of the retailer's stock as it continues to talk to potential buyers of the stricken chain, according to the Telegraph. Meanwhile, the FT says Sir Richard Branson's Virgin Group is the latest company to be caught up in the collapse of Woolworths and is looking to avoid liabilities of up to Â£100m. Northern Foods has won a slice of British Airways' in-flight meals business, replacing Gate Gourmet in supplying meals and sandwiches for short-haul flights from Heathrow airport, according to the FT. EMI is in talks with rivals over a US distribution deal that could bring in tens of millions of dollars for the indebted company, after earlier talks about selling some of its labels stalled, says the FT. STV and UTV, the two UK regional franchise holders of ITV licences, told Ofcom, the British broadcast regulator, on Wednesday that they wanted nothing to do with a single nationwide licence for Channel 3 in the UK, says the FT. BDO Stoy Hayward and PKF have become the latest accounting firms to announce job cuts as the economic downturn begins to hit the professional services sector, reports the FT. Up to 20,000 jobs look set to be lost as a result of the imminent merger of Merrill Lynch and Bank of America, as a further 10,000 job losses were announced across the investment banking fraternity, writes the Telegraph. Former WorldCom chief executive Bernie Ebbers is seeking a presidential pardon for his role in the $11bn (Â£7.5bn) accounting fraud that brought down the company, says the Telegraph. The future of many UK independent music labels was under threat on Thursday following the collapse of Pinnacle Entertainment, the specialist distributor, reports the FT. Channel 4 may be denied a slice of the BBC licence fee as the communications minister shied away from major legislative changes to plug the Â£150m hole in the broadcaster's budget, reports the Telegraph. Company directors are seeking legal advice about their responsibility for the crucial "going concern" judgment in annual reports, as the looming recession brings the viability of many British businesses into question, says the FT. The chairman of China's largest sovereign wealth fund has said he "does not have the courage" to plough money into Wall Street and the City, says the Telegraph.