Negative EU weekend headlines add to the gloom
The markets headed into the weekend meeting of EU finance ministers with high hopes of some more concrete developments regarding the European financial crisis, European bailout fund and Greek funding. The fact that U.S. Treasury Secretary Geithner would be in attendance gave the meeting some additional spice. The final outcome however was outright disappointment.
Not only did the meeting fail to deliver anything new/concrete, but other weekend headlines/commentaries combined to have this week starting off in a definite risk-off mood. No progress was made on either the EFSF ratification or expansion), nor leveraging on the EFSF (a programme suggested by Geithner) while a decision on the release of the next tranche of Greek bailout funds was delayed until October. In the meantime, Greece was urged to come up with additional savings resulting in PM Papandreou being forced to cancel a planned visit to the U.S. to attend the UN General Assembly and IMF meetings.
Outside of the EU meeting, weekend press also had negative implications for risk at this morning’s open. Former British Prime Minister Gordon Brown commented at the World Economic Forum that European banks were “grossly under-capitalised” and warned that, while in 2008 governments were able to step in to sort out banks’ problems, in 2011 they have problems of their own. Elsewhere BIS chief economist warned that additional monetary stimulus would not solve the current crisis with governments needing to urgently fix the debt problem as financial market conditions worsen significantly. Former IMF chief Strauss-Kahn was also in the headlines, suggesting that Greece will be unable to pay its debt and that a haircut was likely inevitable. The final piece in the risk-off jigsaw came when Angela Merkel’s party lost a regional vote in Berlin to the Social Democrats on Sunday, a matter of weeks before the key Euro-zone vote in parliament.
In all the focus on the weekend EU finance ministers’ meeting, US data was by-and-large ignored. The Michigan confidence index was a touch above consensus, rising to 57.8 from 55.7 (57.0 expected) but is still the second worst reading since March 2009. The current conditions turned out higher but, more worrying, the expectations index slid 0.4 points to 47.0 which is even below recession/downturn times and at its lowest since May 1980. Despite this, Wall St made it five days in a row in the black.
The Asian session was focused on the downside for risk from the get-go. EURUSD gapped lower, trading back down to 1.3650 from a 1.38 close in NY on Friday. We saw more of USD/Asia-Ex-Japan liquidation with USDKRW leading the way to near six-month highs. Asian equities took their cue from S&P futures which slide over 1.5 percent though a Tokyo holiday perhaps kept some players sidelined. After the initial flurry, currencies traded in tight (lower) ranges with traders sitting back and likely humming “Let’s twist again” ahead of this week’s FOMC meeting.
On the data front, New Zealand consumer confidence was unchanged in Q3 while the service industry continued to see a slowing amid cautious consumers with the PMI services sliding to 53.9 from 54.5, the second straight month of declines. UK house prices nudged higher in September, according to Rightmove, but the 0.7 percent m/m increase was not enough to wipe out the hefty 2.1 percent decline the previous month yet, year-on-year, prices are indicated 1.5 percent higher.
There was further indication that China’s inflation battle is not yet over as new home price data showed prices rising in all 70 cities monitored by policymakers. With Premier Wen saying on 1 September that China needs to focus on curbing price rises in less-affluent cities, the data questions whether specific efforts are working and may call into question growing market talk recently that the next move in interest rates will be down rather than up. The central city of Nanchang posted the biggest increase among the 70 cities with a 9.1 percent y/y while Beijing rose 1.9 percent and shanghai 2.8 percent.
The markets headed into the weekend meeting of EU finance ministers with high hopes of some more concrete developments regarding the European financial crisis, European bailout fund and Greek funding. The fact that U.S. Treasury Secretary Geithner would be in attendance gave the meeting some additional spice. The final outcome however was outright disappointment.
Not only did the meeting fail to deliver anything new/concrete, but other weekend headlines/commentaries combined to have this week starting off in a definite risk-off mood. No progress was made on either the EFSF ratification or expansion), nor leveraging on the EFSF (a programme suggested by Geithner) while a decision on the release of the next tranche of Greek bailout funds was delayed until October. In the meantime, Greece was urged to come up with additional savings resulting in PM Papandreou being forced to cancel a planned visit to the U.S. to attend the UN General Assembly and IMF meetings.
Outside of the EU meeting, weekend press also had negative implications for risk at this morning’s open. Former British Prime Minister Gordon Brown commented at the World Economic Forum that European banks were “grossly under-capitalised” and warned that, while in 2008 governments were able to step in to sort out banks’ problems, in 2011 they have problems of their own. Elsewhere BIS chief economist warned that additional monetary stimulus would not solve the current crisis with governments needing to urgently fix the debt problem as financial market conditions worsen significantly. Former IMF chief Strauss-Kahn was also in the headlines, suggesting that Greece will be unable to pay its debt and that a haircut was likely inevitable. The final piece in the risk-off jigsaw came when Angela Merkel’s party lost a regional vote in Berlin to the Social Democrats on Sunday, a matter of weeks before the key Euro-zone vote in parliament.
In all the focus on the weekend EU finance ministers’ meeting, US data was by-and-large ignored. The Michigan confidence index was a touch above consensus, rising to 57.8 from 55.7 (57.0 expected) but is still the second worst reading since March 2009. The current conditions turned out higher but, more worrying, the expectations index slid 0.4 points to 47.0 which is even below recession/downturn times and at its lowest since May 1980. Despite this, Wall St made it five days in a row in the black.
The Asian session was focused on the downside for risk from the get-go. EURUSD gapped lower, trading back down to 1.3650 from a 1.38 close in NY on Friday. We saw more of USD/Asia-Ex-Japan liquidation with USDKRW leading the way to near six-month highs. Asian equities took their cue from S&P futures which slide over 1.5 percent though a Tokyo holiday perhaps kept some players sidelined. After the initial flurry, currencies traded in tight (lower) ranges with traders sitting back and likely humming “Let’s twist again” ahead of this week’s FOMC meeting.
On the data front, New Zealand consumer confidence was unchanged in Q3 while the service industry continued to see a slowing amid cautious consumers with the PMI services sliding to 53.9 from 54.5, the second straight month of declines. UK house prices nudged higher in September, according to Rightmove, but the 0.7 percent m/m increase was not enough to wipe out the hefty 2.1 percent decline the previous month yet, year-on-year, prices are indicated 1.5 percent higher.
There was further indication that China’s inflation battle is not yet over as new home price data showed prices rising in all 70 cities monitored by policymakers. With Premier Wen saying on 1 September that China needs to focus on curbing price rises in less-affluent cities, the data questions whether specific efforts are working and may call into question growing market talk recently that the next move in interest rates will be down rather than up. The central city of Nanchang posted the biggest increase among the 70 cities with a 9.1 percent y/y while Beijing rose 1.9 percent and shanghai 2.8 percent.
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