Yen Off Recent Lows, Euro Still Waiting On Spain

The Japanese Yen got off last week's lows at the start of the trading week, as investors looked beyond the Bank of Japan's expected easing steps and instead focused on US economic factors.

The Yen continued to advance against the Euro earlier today, ahead of key reports that are due out on Tuesday.

Data is expected to show that Spain's gross domestic product has shrunk by around 0.4% last quarter and that Germany's jobless rate has risen 6.9% in October from September, its highest level in more than three years.

Other data due out on Friday, could also show that U.S. unemployment has climbed in October. I expect that the U.S. jobless rate will have climbed to around 7.9% for the month.

With especially the Euro region's economy being as bad as it is and with no sign of picking up, I expect there to be appreciation pressure on the Yen for the moment.

The markets will shift their attention onto the Bank of Japan (BOJ) which is scheduled to meet on Tuesday. Expectations are high for an announcement to confirm any easing policy.

Government data had last week shown, that consumer prices had fallen for a fifth consecutive month. This has made the central bank's 1% inflation target elusive.

As a result, the BOJ board members are now facing political pressure to ease policy and I expect that we could see officials boosting asset purchases on Tuesday. Should that occur, I then expect that the Yen may momentarily weaken.

Earlier today, the Yen was at 79.74 per U.S. Dollar and at 103.08 per Euro.

Meanwhile, investors still await Spain's request for a bailout, which would kick-start the European Central Bank bond-buying programme and could force the Euro out of its recent range

Now European policy makers are anxious for the release of a report on Greece's progress in meeting internationally agreed targets. These targets were compiled by the troika of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF).

The Euro was down by 0.1% to $1.2927 earlier today.

From the U.S comes news that the New York Stock Exchange and New York Mercantile Exchange have cancelled floor trading for the day. The Securities Industry and Financial Markets Association had suggested that trading end at noon New York time today, because of imminent Hurricane Sandy
 

Diwali 2012 is just a couple of weeks away. Traditionally, this has been the season for buying gold. We thought it would be interesting to see how gold prices have appreciated over a decade. Today's chart of the day shows the return on gold from one Diwali to the next in rupee terms. Had you invested in gold every year since Diwali 2001, you would have made enormous gains on all your gold investments. The total gains would have been about 670%. So, should you buy gold even after it has risen so substantially? Being a keeper of value, gold tends to act as a hedge against currency devaluation and negative real interest rates. At a time when central banks across the world are recklessly devaluing the ir currencies, gold has retained its status as a safe haven. As such, we believe that gold should account for about 10-15% of a person's investment portfolio. 

Japan remains mired in deflation.

 Japanese CPI fell 0.1% on year in September vs consensus of -0.2%, with the continued deflation increasing the pressure - not least from the government - on the Bank of Japan to announce further easing in a policy meeting next week. "the BOJ will top up its asset-buying program by 10T ($125B) yen."

Woe deepens in Spain's job market.

 Spanish unemployment rose to a new record high of 25% in Q3 from 24.6% in Q2 and vs consensus of 25.1%. The trend was exacerbated by labor reform making it easier to fire workers

World's spare oil capacity rises, but so do Iranian exports.

Global spare oil output capacity excluding Iranian production rose to 2M bpd in Sep-Oct from 1.8M bpd in the previous two months, Reuters reports, citing EIA estimates. The latest level is historically low but does give Western powers room to continue squeezing Iran over its nuclear program. Despite that pressure, though, preliminary data shows that Iranian crude exports have slightly increased since July.

U.S. set to overtake Saudi Arabia in oil output in eight years.

2020 - that’s the year U.S. oil production will overtake Saudi Arabia if current rates of production growth hold steady. U.S. output is on track to surge 7% this year, to 10.9M bps - the biggest one-year gain in over 60 years. The production turnaround is pushing down imports, too: today, the U.S. imports just over 40% of its oil, the smallest share in 20 years

U.K. exits double-dip recession.

The U.K. economy grew a greater-than-expected 1% on quarter in Q3, representing the fastest growth in five years and signalling the end of the country's recession after nine months. Growth was boosted by the London Olympics and the loss of a workday in Q2 - which effects the Q/Q comparison - due to the Queen's jubilee celebrations. Q4 figures may therefore provide a better idea of the underlying picture.