Very little on the data front to tip the scales today
MAJOR HEADLINES – PREVIOUS SESSION
- CA Aug. Wholesale Sales out at -1.4% m/m vs. -0.4% expected and revised +2.6% prior
- CA Sep. Leading Indicators out at +1.1% m/m vs. +0.8% expected and revised +1.2% prior
- US Sep. PPI out at -0.6% m/m vs. flat expected and +1.7% prior
- US Sep. Housing Starts out at 590k vs. 610k expected and revised 587k prior
- US Sep. Building Permits out at 573k vs. 595k expected and revised 580k prior
- CA Bank of Canada leaves rates unchanged
- US Weekly ABC Consumer Confidence out at -50 vs. -48 prior
- NZ Sep. Visitor Arrivals out at 3.8% vs. revised -0.5% prior
- AU Westpac Aug. Leading index out at 1.1% vs. revised 1.4% prior
- AU Sep. New Vehicle Sales out at +2.9% m/m, -2.0% y/y vs. revised +0.1%/-6.1% prior resp.
- NZ Sep. Credit Card Spending out at -2.3% y/y vs. +0.1% prior
THEMES TO WATCH – UPCOMING SESSION
(All times GMT)
- UK BOE Minutes 0830)
- UK CBI Qtrly Industrial Trends Survey (1000)
- US Weekly MBA Mortgage Applications (1100)
- US Fed’s Lacker to speak (1300)
- US Fed’s Cumming to speak (1300)
- US Fed’s Tarullo to speak (1700)
Market Comments:
While Q3 earnings releases continued to beat forecasts overnight, markets instead decided to focus on the less than stellar US data, resulting in a dollar rebound and a slight retracement on Wall St. US housing starts increased only marginally (590k from revised 587k last, 610k expected) while building permits declined to 573k from 580k (consensus 595k).
The dollar’s recovery ensured that EURUSD left the 1.50 level untouched, a level that French President Sarkozy’s speech writer Guaino described as “disastrous for European industry and the economy”. Fin Min Lagarde also mentioned that she is worried about EUR levels (though not specifically versus the USD).
CAD was the major underperformer after the BOC’s rate announcement. The BOC left rates unchanged but highlighted the negative impact of the CAD’s current strength, saying that, over time, it would “more than fully offset the favourable developments since July”. In addition, the bank reminded that it had extraordinary policy measures as an option (ie QE). The firmer dollar and softer CAD ensured that the parity level that had been in the sights for USDCAD remained a pipe dream, at least in the near-term.
In his speech yesterday, BOE Governor Mervyn King sounded especially dovish on the UK economy, saying that while it is likely to return to positive growth in H2 2009, the recovery will neither be smooth nor painless. As such, the conduct of monetary policy would be particularly difficult and challenging. He noted that UK banks were still overly dependent on the government and the impact of the global financial crisis would likely be felt for a generation. He was a tad more hawkish on the CPI outlook, saying it was likely to remain volatile and could edge higher in coming months due to higher petrol prices, sterling’s weakness and the reversal of a cut in the VAT on Jan 1st. His comments could be a precursor to the tone of the BOE minutes due to be released later and is likely to keep GBP on the back foot.
There was no such problem for the NZD after RBNZ’s Bollard surprised the market with a comment in a radio interview suggesting that the high level of the NZD was not necessarily an obstacle to raising the cash rate. He later qualified this comment by adding that this was in the context of stronger domestic demand and house prices. Nevertheless, wWith eyes on next Thursday’s policy meeting, and the expectation that the RBNZ would drop its easing/dovish bias, today’s comments seem to affirm that prospect. NZDUSD had a quick 40-50 point run-up post-comments but ran out of steam shortly thereafter in a broadly USD-positive environment. Nevertheless, expect the NZD to maintain support on other crosses near-term.
BOJ Deputy Governor Nishimura was also on the wires, reaffirming the BOJ’s dovish stance by saying it is important to persist with an accommodative policy to help sustain the economy's recovery. Though he expects Japan's economy to pick up further, he notes downside risks are still high adding that developed countries in general could face downwards pressure due to balance sheet adjustments. Otherwise he notes it will take a while for inflation to go to the desired level, with annual CPI falls likely to continue for a considerable time. Financial conditions are said to be widely improving though, with the BOJ to decide on whether to extend its corporate support measures at the next Oct 30th policy meeting or later. Whilst on Japan, car-maker Honda commented on the fall of the dollar, saying that if it falls further then the company would need to secure key export markets other than the US to sustain production at its Japanese factories. Nissan also joined in with comments that it would use US-made cars for exports to “dollar countries” such as in the Middle East. Bear in mind that Japanese corporate had mostly budgeted a USDJPY rate closer to 95.0 than current levels for Q4 and current sentiment suggests such a level is well out of reach.
It's a very quiet session on the data front today, so more Q3 earnings will dominate headlines. Apart from the BOE minutes, the UK will see the quarterly CBI report with the only other data the weekly US mortgage applications. Fed speakers are out in force with Lacker, Cumming and Tarullo all scheduled.
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