Dovish Draghi Unlikely to Derail Euro

The euro was bid to new highs for the move earlier in Asia to $1.3640 before pulling back to the figure to await the ECB meeting.  It is notable that the euro remains bid even as the market expects dovish comments from ECB President Draghi and, after yesterday's strong ADP jobs estimate, increased speculation of near-term slowing of the Fed's asset purchases.  

This price action cautions against expecting a reversal of the trend in response to today's developments; whether it is the ECB press conference, or the US data, which includes weekly initial jobless claims and what is widely expected to be an upward revision to Q3 US GDP that will give it a 3-handle.  Every year, since the US economy bottomed there has been at least one quarterly growth number that put the annualized rate about 3%.  Many had given up on it this year, but recent inventory data points to that quarter being Q3.  That pace of growth, however, does not appear to be extending into this quarter.  

Norway's central bank may have provided the biggest surprise of the day.  The decision to keep rate on hold was widely anticipated, but what wasn't was pushing out the first rate hike a full year from where the Norges Bank had indicated in September.  The market punished the krone, sending it to the lowest level against the euro since late 2009.  A fall in CPI in early 2014 would likely renew speculation of a rate cut.  The euro rose above NOK8.41 briefly.  The next band of resistance is seen in the NOK8.4250-NOK8.44.  

There were a few developments in Japan to note.   First, the dollar has been confined to about a half a yen at the lower end of yesterday's range, which straddles the JPY102 level.  Second, the Nikkei lost another 1.5% and finished the Tokyo session near its lows and just below the 20-day moving average (15181).  As discussed yesterday, the gap lower opening Wednesday is an ominous technical development.  It was not filled today.   

Third, the Japanese cabinet approved the JPY18.6 trillion (~$182 bln)supplemental budget.  Much of it was spending already announced, but there is JPY5.5 trillion that is new and meant to offset next year's retail sales tax increase.   It will not be debt financed, but through the higher tax revenue (due to stronger economy) and unspent funds.  Fourth, Japanese investors bought foreign bonds for the 8th consecutive week, but this was offset in full by the sales of foreign equities.  Fro their part, foreigners continued to buy Japanese shares, but on a net basis, the purchases (and of Japanese bonds) by the sale of bills.  

Shortly after Australia reported a larger than expected trade deficit (A$529 mln vs A$350 consensus), it announced the a free-trade agreement with South Korea.  Australia's exports were flat, while imports rose 0.8%, producing the fourth consecutive deficit.   South Korea is Australia's third largest export market and fourth largest trading partner.    

In Europe, we note that the French unemployment rate ticked up in Q3 to 10.9% from 10.8% and is approaching the modern record of 11.2% seen in Q4 1997.  The divergence between the French and German economies was amply driven home with the latest PMI readings.  

Spain's survey data has been more promising and Moody's upgraded the outlook to stable late yesterday, but real sector appears to be struggling.  Industrial output in Oct was expected to have slipped by 0.1% and instead fell 0.7%, with downward revisions to the Sept report.  

The Italian Constitutional Court is forcing political reform on the Letta government, which desires to implement such reforms but appears to have lacked a consensus.  The Court ruled the existing electoral law violates the Constitution by giving extra seats to the winning party/coalition, which denies voters from choosing individual candidates. 

A monkey wrench of sorts has been thrown into the digital currency world today by China's decision to ban financial institutions from trading Bitcoins.  The public can still access Bitcoins through the internet.  The ban only applies to financial institutions.  

Lastly, sterling is trading with a heavier bias, unable to establish a foothold above $1.6400 ahead of the Autumn Statement (largely leaked) and the BOE meeting (which is unlikely to do anything).