European Fundamentals Disappoints Ahead of ECB and BoE Rate Decision

Deteriorating fundamentals continues to reflect a dour outlook for the euro-region, and may lead the European Central Bank to ease policy throughout the next year as price pressures alleviate.

[Fundamental] Headlines

• Big Three Seek $34 Billion Aid – Wall Street Journal
• Goldman Considers Online Bank – Wall Street Journal
• GE expects to miss profits forecast – Financial Times
• Merrill Said to Cut Bonuses by 50% as Revenue Slumps – Bloomberg
• Stocks to Rise in ’09, UBS Says; S&P 500 May Gain 53% – Bloomberg
• EURUSD – The German services PMI for November was revised lower to 45.1 from an initial reading of 46.2 as demands from home and abroad deteriorate.

The breakdown of the report showed that new businesses edged lower to 43.4 from 43.9 in October, while the employment component slipped to 49.8 from 50.7. Moreover, service-based activity throughout the Euro-Zone weakened further as the PMI fell to 42.5 from an initial reading of 43.3. A deeper look showed that business expectations weakened to 41.6 from 42.3 in the previous month, while the employment component slipped to 47.9 from 48.2. As a result, the composite PMI reading declined to 38.9 from 39.7, and may fall further over the coming months as the economy heads into a recession. Meanwhile retail spending in the Euro-Zone fell 0.8% in October despite expectations for a 0.4% decline. The report showed that discretionary spending on food and drinks fell 0.5% from September, while demands for non-food products slipped 0.9%. Deteriorating fundamentals continues to reflect a dour outlook for the euro-region, and may lead the European Central Bank to ease policy throughout the next year as price pressures alleviate. Discuss the topic and your trade ideas in the EUR/USD Forum.

• GBPUSD
– Service-based activity in the U.K. slipped to a record low in November as the PMI reading slipped to 40.1 from 42.4 in October. The breakdown of the report showed that business expectations fell to a record low reading of 49.5 from 50.8 in October, while new businesses plunged to 37.9 from 40.1. Meanwhile, the BRC shop price index rose 0.2% in November, while the annual rate reached its slowest pace in five months. The data continues to support a bearish outlook for the British pound as the Bank of England is expected to ease policy further in the months ahead, and may continue to lower borrowing costs in 2009 as the economy faces its worst recession in over a decade.

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