Asia closing the week with a slightly better bid dollar
MAJOR HEADLINES – PREVIOUS SESSION
- CA Aug. Retail Sales out at +0.8% m/m vs. +0.4% expected and revised -0.5% prior
- US Weekly Initial Jobless Claims out at 531k vs. 515k expected and revised 520k prior
- US Weekly Continuing Claims out at 5923k vs. 5970k expected and revised 6021k prior
- US Sep. Leading Indicators out at +1.0% vs. +0.8% expected and revised +0.4% prior
- US Aug. House Price Index out at -0.3% m/m vs. +0.3% expected and +0.3% prior
- AU Q3 Import Price Index out at -3.0% q/q vs. -2.8% expected and -6.4% prior
- AU Q3 Export Price Index out at -9.6% q/q vs. -4.7% expected and -20.6% prior
- SI Sep. CPI out at -0.4% y/y vs. -0.2% expected and -0.3% prior
THEMES TO WATCH – UPCOMING SESSION
(All times GMT)
- GE PMI Manufacturing/Services (0730)
- GE IFO Surveys (0800)
- EU PMI Manufacturing/Services/
Composite (0800) - UK Q3 GDP (0830)
- UK Index of Services (0830)
- UK BBA Loans for House Purchase (0830)
- EU Industrial new Orders (0900)
- EU ECB’s Nowotny to speak (1030)
- US Fed’s Bernanke to speak (1230)
- US Existing Home Sales (1400)
- US Fed’s Kohn to speak (1530)
Market Comments:
It was a familiar story overnight with what looked to be a “risk off” and dollar-positive day in Asia soon running out of steam in the European/US session. Risk bears were caught offside and the ensuing snapback rally brought us back to Asian opening levels. Again Q3 earnings generally beat market expectations as Asia took over the baton with risk appetite firmly back in place.
GBP had a slight scare after the retails sales data came in well below forecast (flat for the second straight month versus +0.5% expected), even though the data series is regarded as erratic and irrelevant. BOE Deputy Governor Paul Tucker reminded us that an increase in quantitative easing beyond the £200 bln proposed under the current scheme “would be possible and it would happen” if it was deemed necessary. However, thought the economy now appeared to be on a path to recovery, though it would be hard to tell whether we face anaemic or above-trend growth. The early pressure that GBP felt was soon reversed as the dollar retreated though.
Of the Fed speakers overnight, Rosengren grabbed the headlines with a comments that the US risks dipping back into recession after expanding in H2 2009. When asked about the dollar he replied that “the movement we have seen is a pretty natural movement that reflects people’s comfort level with a recovery in US and other economies. We care about the dollar to the extent that it impacts inflation and unemployment.” No obvious impact on the dollar at the time.
Activity in Asia was limited to relatively tight ranges. The “risk-on” feel, with equity markets starting off strongly, pulled EURUSD through the supposed barrier at 1.5050 but managed only another 9 ticks before reversing quickly. Profit-taking and an FT article suggesting the Fed may be considering a slight adjustment to the language of its statement that rates would be held low for an “extended period”. The piece muses that the Fed will want to avoid a situation where it is forced to move quickly from forecasting an “extended period” of low rates to raising them, a move that would disrupt markets and certainly undermine its credibility. The dollar was comforted by the possible development and the USD index was marginally in positive territory by lunch.
Q3 GDP data is the major event for the UK today with the market looking for growth of +0.2% q/q, the first positive growth since Q1 2008. However, yesterday’s weak retail sales data and news that industrial production surprisingly fell in September may suggest that a weaker result may not be too much of a surprise. If we stay in negative growth for another quarter, then watch out below GBP!
Elsewhere we get to see German PMIs and IFO surveys, Euro-zone PMIs and industrial new orders for August. The US sees existing home sales (note other housing data has been a tad softer of late) while Fed speakers Bernanke and Kohn wrap up the week.
Have a great weekend.
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