US Consumer Confidence

The Conference Board's index of US consumer confidence rose to 54.1 in November from a revised 49.9 in October, on consensus expectations of 53.0. Historical revisions did little to offset the report's positive surprise, with October revised to 49.9 from 50.2. The present situation component rose to 24.0 in November from 23.5 in October, while the future expectation component surged to 74.2 from 67.5. The present situation reading of 24.0 is only nominally higher than the record low of 20.20 seen in December 2009, and remains a third of the level seen immediately before the Lehman crisis. By contrast, the future expectation reading of 74.2 compares to a record low of 27.30 in February 2009 and stands over 50% higher than immediately before the Lehman crisis. The improvement in the Conference Board's consumer confidence measure for November compares to the University of Michigan's consumer confidence final November reading of 71.6 on consensus expectations of 69.5 and a final October reading of 67.7.

Regional differences in consumer confidence remained deeply entrenched in November, with readings varying from a low of 44.0 in the Middle Atlantic region (previously 44.9) to a high of 89.7 in the West South Central (previously 71.8). Weakness in the present situation component is highlighted in the East North Central (13.7 from 20.2) and Pacific (15.6 from 15.6) regions, while strength in the expectations component is highlighted in the West South Central (96.8 from 77.8) and Mountain (90.0 from 87.1) regions. The fact that the present situation (24.0) remains well below expectations (74.2) supports the argument for economic recovery, though this has been the case now for 25 consecutive months. In the present situation component, participants who thought that employment was plentiful improved to 4.0% from 3.5%, while those who felt employment was hard to get rose to 46.5% from 46.3%. 

In the expectations component, participants who thought that business conditions would get better in six months rose to 16.7% from 15.8%, while those who felt there would be more jobs in six months rose to 15.5% from 14.5%. The regional disparity in consumer confidence suggests that the mid-term election results may have had a temporary impact, with regions of the country experiencing change in party leadership showing larger gains in confidence. However, this may well be a transient phenomenon without a material improvement in the local unemployment rate.

The consumer confidence report was released at the same time as the Milwaukee NAPM (59.0 on expectations of 57.5) and following the Chicago PMI (62.5 on expectations of 59.9). However, the upbeat US data did not appear to have much impact in foreign exchange markets. The EUR/USD fell to a session low of 1.2969 at 8:30am EST ahead of the data from an overnight high of 1.3150, before rebounding back to 1.3030 following the releases. 

Similarly, GBP/USD bottomed at 1.5485 at 8.40am before surging to a session high of 1.5596 following the data at 11am. Elsewhere, USD/JPY fell to a session low of 83.43 by 9:00am from an overnight high of 84.32, before trading back to 83.60 by 11am. Some of the larger moves overnight were in the JOY crosses, with EUR/JPY falling -2.1% to 108.35 by 9:25am from an overnight high of 110.69 and AUD/JPY falling -1.9% to 79.84 by 9:00am from an overnight high of 81.38. This month's selloff in the EUR has been driven in part by rising concerns about the European sovereign debt crisis. However, it has also been driven by a global decline in risk appetite as well as a seasonal repatriation of assets - paralleling a pattern seen late last year. While history never repeats itself exactly, this year's developments in Ireland and North Korean appear to be prompting a similar market reaction as last year's developments in Greece and Dubai. Namely, investors are closing their books early for the year to book profit, and moving cash into the safe-haven USD. If last year is any guide, the USD has further to rally.

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