EURUSD tried to take out 1.40 again in Europe on resilient EuroZone activity surveys. But risk measures and inconsistent moves elsewhere suggest that we may have a hard time reverting fully to the Everything Up/ USD Down trade in the same way as before.
Posen and Osborne pound sterling
The BoE’s Posen was out continuing his dovish pronouncements, complaining about the “patchy” UK economic recovery and suggesting that inflation targeting is a goo d policy to pursue and that inflation is trending downward (yes – slightly, but still at levels that are considered so high that Mr. King is required to write a letter of explanation to the Chancellor …!) and will continue to do so. Mr. Posen is the new Blanchflower of the BoE – but will he prove as predictive of the course of BoE policy as his former colleague? Meanwhile, importantly, Chancellor Osborne was out saying that the Bank of England is always there should an economic slump develop in the wake of the government’s austerity measures aimed at reducing the budget deficit. Poor UK economic data and a resumption of the Everything Up/USD Down trade spelled trouble for the pound, which is essentially a fellow traveler of the greenback at the moment now that BoE policy appears on the cusp of following Fed policy.
The BoE’s Posen was out continuing his dovish pronouncements, complaining about the “patchy” UK economic recovery and suggesting that inflation targeting is a goo d policy to pursue and that inflation is trending downward (yes – slightly, but still at levels that are considered so high that Mr. King is required to write a letter of explanation to the Chancellor …!) and will continue to do so. Mr. Posen is the new Blanchflower of the BoE – but will he prove as predictive of the course of BoE policy as his former colleague? Meanwhile, importantly, Chancellor Osborne was out saying that the Bank of England is always there should an economic slump develop in the wake of the government’s austerity measures aimed at reducing the budget deficit. Poor UK economic data and a resumption of the Everything Up/USD Down trade spelled trouble for the pound, which is essentially a fellow traveler of the greenback at the moment now that BoE policy appears on the cusp of following Fed policy.
Fed Beige Book and EURUSD
The Fed’s Beige Book was actually mildly positive relative to the bond market’s apparently dim view of the economy, as eight of the 12 Fed districts reported growth, while two reported mixed results, one was “holding steady” and one “remained slow” . In any case, it didn’t dampen enthusiasm much for selling the USD much as EURUSD was back trading above 1.40 in the European session today. Euro upside was aided by the continuing upward spiral in yields at the short end of the curve in Europe as well as very resilient preliminary PMI’s for October. The German 2-year yield is up over 25 bps from mid September. How long is the ECB willing to watch the screws tighten as the rest of the world devalues?
The Fed’s Beige Book was actually mildly positive relative to the bond market’s apparently dim view of the economy, as eight of the 12 Fed districts reported growth, while two reported mixed results, one was “holding steady” and one “remained slow” . In any case, it didn’t dampen enthusiasm much for selling the USD much as EURUSD was back trading above 1.40 in the European session today. Euro upside was aided by the continuing upward spiral in yields at the short end of the curve in Europe as well as very resilient preliminary PMI’s for October. The German 2-year yield is up over 25 bps from mid September. How long is the ECB willing to watch the screws tighten as the rest of the world devalues?
Chart: EURCHF
EURCHF breaking to a new high since early August as European rates continue to pressure Euro crosses higher and as the Euro is the preferred reserve alternative in a devaluing world.
Chinese data
There wasn’t much in the Chinese data that was the apparent cause of the recent PBOC decision to raise rates. Generally, the data was on the soft side relative to recent trends. More interesting to us than these numbers, we finally have the electricity consumption data out for September. Many believe that electricity consumption is a more reliable indicator of Chinese economic activity than the “official” figures. The September electricity consumption more than confirms the slightly softness in the growth and production figures as it was up just under 9% YoY, the lowest level of growth in just over a year. It appears that the regime is allowing the economy to cool somewhat.
There wasn’t much in the Chinese data that was the apparent cause of the recent PBOC decision to raise rates. Generally, the data was on the soft side relative to recent trends. More interesting to us than these numbers, we finally have the electricity consumption data out for September. Many believe that electricity consumption is a more reliable indicator of Chinese economic activity than the “official” figures. The September electricity consumption more than confirms the slightly softness in the growth and production figures as it was up just under 9% YoY, the lowest level of growth in just over a year. It appears that the regime is allowing the economy to cool somewhat.
Looking ahead
It’s tempting to believe we’re just going to snap back to the old pro-risk trades here if we simply look at equities and some of the USD crosses, but there are more divergences this time around to suggest that the Everything Up/USD Down trade is weakening a bit even if it still has powerful proponents. AUD is reluctant to go much higher here because of the recent RBA comments, Gold has only taken back about a quarter of the lost ground from the recent top in prices, long US Treasuries seem to take four steps forward and three steps back. Risk measures are a bit sideways…If these other factors begin to point more unanimously to the upside again for risk and down for the USD, then we’ll believe in a strong resumption of the old trend. Until then, the market may continue to chop around treacherously for both bears and bulls. Meanwhile, the November 2-3 one-two punch is fast approaching and offers the highest odds of serving as an important inflection point in this market.
It’s tempting to believe we’re just going to snap back to the old pro-risk trades here if we simply look at equities and some of the USD crosses, but there are more divergences this time around to suggest that the Everything Up/USD Down trade is weakening a bit even if it still has powerful proponents. AUD is reluctant to go much higher here because of the recent RBA comments, Gold has only taken back about a quarter of the lost ground from the recent top in prices, long US Treasuries seem to take four steps forward and three steps back. Risk measures are a bit sideways…If these other factors begin to point more unanimously to the upside again for risk and down for the USD, then we’ll believe in a strong resumption of the old trend. Until then, the market may continue to chop around treacherously for both bears and bulls. Meanwhile, the November 2-3 one-two punch is fast approaching and offers the highest odds of serving as an important inflection point in this market.
Also meanwhile, we have the G-20 finance ministers putting their heads together this weekend. Usually these conferences come and go without the need for much comment or affect on the market, but this time around, there is far more likelihood of strong comments from the participants and more pressure on China than ever before to move on its currency. The question is how much comes to light now vs. at the November 12 main event in Seoul, when the politicians are also involved.
Economic Data Highlights
- China Q3 GDP out at 9.6% YoY vs. 9.5% expected and 10.3% in Q2
- New Zealand Sep. Credit Card Spending out at +0.9% MoM and +4.1% YoY vs. +2.1% YoY in Aug.
- New Zealand Oct. ANZ Consumer Confidence Index out at 113.6 vs. 116.4 in Sep.
- China Sep. Producer Price Index out at +4.3% YoY vs. 4.1% expected and 4.3% in Aug.
- China Sep. Purchasing Price Index out at +7.1% YoY vs. 7.5% in Aug.
- China Sep. CPI out at +3.6% YoY as expected and vs. 3.5% in Aug.
- China Sep. Retail Sales out at +18.8% YoY vs. 18.5% expected and 18.4% in Aug.
- China Sep. Industrial Production out at +13.3% YoY vs. 14.0% expected and 13.9% in Aug.
- Switzerland Sep. Trade Balance out at 1.69B vs. 1.2B expected and 0.58B in Aug.
- Germany Oct. preliminary Manufacturing PMI out at 56.1 vs. 54.6 expected and 55.1 in Sep.
- Germany Oct. preliminary Services PMI out at 56.6 vs. 54.9 expected and 54.9 in Sep.
- EuroZone Oct. preliminary Manufacturing PMI out at 54.1 vs. 53.2 expected and 53.7 in Sep.
- EuroZone Sep. preliminary Services PMI out at 53.2 vs. 53.7 expected and 54.1 in Sep.
- UK Sep. Major Banks Mortgage Approvals out at 44k as expected and vs. 45k in Aug.
- UK Sep. Retail Sales ex Auto Fuel out at 0.0% MoM and 1.8% YoY vs. +0.2%/+1.9% expected, respectively
- Switzerland Oct. ZEW Survey out at -27.5 vs. -5.1 in Sep.
- Canada Sep. Leading Indicators out at -0.1% MoM vs. +0.2% expected and +0.6% in Aug.
- US Weekly Initial Jobless Claims out at 452k vs. 455k expected and 475k last week.
- US Weekly Continuing Claims out at 4441k vs. 4420k expected and 4450k last week
Upcoming Economic Calendar Highlights
- US Fed’s Bullard to Speak (1400)
- EuroZone Oct. Consumer Confidence (1400)
- US Sep. Leading Indicators (1400)
- US Oct. Philly Fed (1400)
- US Fed’s Bullard to hold press briefing (1800)
- US Fed’s Hoenig to Speak on US Economic Outlook (0145)
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