JPY a winner at the moment on lower rates and possible seasonal effects.
MAJOR HEADLINES – PREVIOUS SESSION
- New Zealand Q3 Westpac Consumer Confidence out at 120.3 vs. 106 in Q2
- Japan Aug. Adjusted Merchandise Trade Balance out at ¥235.4B vs. ¥187.7B expected
- Australia Aug. HIA New Home Sales rose 11.4% MoM
- Sweden Sep. Consumer Confidence rose to 5.6 vs. 6.0 expected and 3.1 in Aug.
- Sweden Sep. Manufacturing Confidence steady at -20 vs. 015 expected
- Sweden Aug. PPI out at -0.1% YoY vs. +0.5% expected
- Germany Sep. IFO Business Climate out at 91.3 vs. 92.0 expected and 90.5 in Aug.
- US Weekly Initial Jobless Claims out at 530k vs. 550k expected and 551k last week
- US Continuing Claims fell to 6138k vs. 6183k expected and 6261k last week
THEMES TO WATCH – UPCOMING SESSION
(All times GMT)- US Aug. Existing Home Sales (1400)
- US Fed's Evans to Speak (1430)
- US Treasury Secretary Geithner to Speak ahead of G-20 (2030)
- New Zealand Aug. Trade Balance (2245)
- Japan BoJ Meeting Minutes (2350)
- Japan Aug. Corporate Service Prices (2350)
USD rally fizzling quickly...
The USD rally that began so enthusiastically late yesterday after the FOMC meeting failed to keep the risk party going, has already started taking on water in today's European session. The USD bulls are having a tough time keeping a lid on EURUSD and AUDUSD and USDJPY is almost back to its recent lows. This is a bit surprising if we glance over at equity markets, which are still well off yesterday's highs in the S&P futures, though the Asian and European sessions today were fairly constructive. The JPY is the only clear winner at the moment - partially no doubt due to bond strength yesterday, though seasonal effects right here before the end of the Japanese economic half-year and rumors of corporate repatriation may also be playing a part.
Pound knocked for another round
The salient development in today's European session was a story out from the Telegraph announcing that policy makers are looking to convene a "crisis meeting" of economists next week to discuss the reasons for the pound's fall and the BoE's QE measures. The market apparently smelled fear in these actions and GBP was blasted back into the basement across the board. GBPUSD is back threatening the recent lows, with the bigger support at 1.6110 not far beyond. EURGBP set a new high since early April of this year. Speculation is swirling now on whether the policy makers could go forward with cuts on deposits by banks with the BoE, but from where we are sitting, the meeting may be more about playing defense and figuring out a way to accomplish the BoE's objectives without causing a currency panic. Competitive devaluation is one thing that could have positive effects in the near term. while a currency meltdown is to be avoided. With similar problems to the UK (fiscal profligacy, low rates, etc...) in the US, this may be one of the reasons the USD has lost steam so quickly, as the market could be playing on this theme. Still - JPY has the same problems, and it is certainly not suffering at the moment, though its current account is positive enough for it to escape the immediate vulnerability of a country with a large deficit like the UK.
Interest rates on the radar today
Today is the final of the three huge US treasury auctions this week - with $27 billion of 7-year notes on the block. Now that the FOMC is out of the way and failed to produce huge surprises, bidders may feel more comfortable than in the auctions of the last two days (of 2-year and 5-year notes, in which results ended with higher yields than initially anticipated) and they may also like the higher yields on the longer duration debt. A strong auction is likely and could continue to support the JPY (again we note the conundrum of simultaneous strength in AUD and JPY - not likely to last for long...)
FOMC outcome - glacier change, but change nonetheless.
The Fed meeting is widely interpreted as slightly on the dovish side of the spectrum of possibilities, but it nonetheless marks the important beginning of an exit strategy since it provides a time table for withdrawal for one of the Fed's "sets of tools" aimed at supporting liquidity and the flow of credit. The US economy is still on life support, but it will soon be on less life support, meaning that it will need to show a little more life on its own accord. In the economic intensive care unit, the Fed will have rolled away the debt monetization machine by the end of next month and the hulking mortgage buying machine by March of next year. Still in place, and not mentioned in the Fed's statement yesterday, are other programs like the TALF aimed at consumer credit, commercial paper facilities, and various money market-related facilities. Even discussing rate adjustments at this point is extremely premature in the US. Norway, on the other hand, is ready to tighten the screws next month.
Back to the same old same old.
All in all, the market seems to have taken the not-terribly-surprising FOMC developments and a slightly disappointing German IFO in stride, and we are back to being glued to the S&P500 for determining a direction for the USD. Also watch the G-20 for developments of interest, which may be few and far between. Note that the end of the month here could be seeing some window dressing by performance chasers, who are looking to close the gap with their benchmarks. So market activity may shift gears as the new month arrives.
US data review
US Initial jobless claims were out at the lowest level on a seasonally adjusted basis since a brief spike in July - but for perspective, we are entering the key season for job losses, and the non-seasonally adjusted number is 5% higher than the number for last week, and some 35k higher than the jobless claims for the same week last year. Hard to believe that in this "recovery" that more people are firing initial claims now than then. We should probably expect strong Existing Home Sales numbers for today, with the Fed buying 80% of mortgages and in the dying months of the first time home buyers tax credit program. It will be nice to analyze a real economy some day rather than one propped up by endless public spending.....what are equity buyers thinking?
Chart: USDJPY
The battleground at 90.00 beckons once again as the end of the half year approaches. This will be an interesting area to watch - and USDJPY is one of the few currency pairs actually seeing a rise in volatility of late.
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