The
Euro-zone will remain an important short-term focus as uncertainty
surrounding the Spanish situation continues. There will be a series of
important Summit meetings during the month with Spain under intense
pressure to make a bailout request. There will, however, be the threat
of increasing tensions, especially given political protests and growing
fears over the implications of continuing recession. Central banks
will maintain an aggressive stance in providing substantial global
liquidity which will help protect risk appetite, at least to some
extent.
Key events for the forthcoming week
| Date | Time (GMT) | Data release/event |
| Friday October 5th | 12.30 | US employment data |
| Monday October 8th |
| Eurogroup meetings |
| Tuesday October 9th | 08.30 | UK industrial production |
Dollar:
The US economic
releases have maintained a mixed tone during the week with stronger
than expected readings for the PMI data increasing expectations of a
stronger fourth quarter. The Federal Reserve, however, has stated its
determination to maintain quantitative easing until unemployment falls
which will limit any dollar support. The US should still gain some
support from expectations of out-performance compared with the
Euro-zone. International growth considerations will also remain
important and there should be some underlying dollar support from fears
over the outlook. The US currency will, however, find it difficult to gain strong support given reduced reserve support from reserve managers.
The dollar was
unable to secure any significant gained during the week with an
underlying lack of enthusiasm for the currency not offset by
risk-related demand.
The latest US ISM manufacturing
index was stronger than expected with the first reading above the 50
level for four months at 51.5. The latest ISM non-manufacturing index
was stronger than expected at 55.1 for September from 53.7. There will
be relief surrounding the orders data, but some disappointment
surrounding the employment component which dipped to just above 50.
The US jobless
claims data was slightly better than expected at 367,000 in the latest
week from a revised 363,000 previously which offered some encouragement
surrounding the labour market. The latest payroll data will inevitably
be important for sentiment on Friday with employment gains and trends in
the workforce watched very closely, especially given the potential
political implications.
The Fed minutes were generally
dovish as the Fed reinforced its unease surrounding employment trends.
Some members were uneasy over further quantitative easing and there was
also some pressure for the Fed to drop references to rates being left
low for an extended period.
| Euro |
There
will be further expectations that Spain will apply for a bailout
package in an attempt to stabilise the economy. This should provide some
degree of support for the Euro, but market anxiety will quickly
increase if Spain continues to resist. There will also be major unease
surrounding the growth outlook and prospects of growing political
turmoil in peripheral economies if recession intensifies. Greece
remains in severe difficulties and there will be increased friction
between core and peripheral economies. In this context, there will be
threat of renewed tensions within the Euro-zone and downward pressure on
the Euro could intensify rapidly.
The Euro maintained a
firm tone during the week and pushed to challenge resistance levels
above 1.30 against the US currency with the currency gaining underlying
support from an underlying reduction of short positions.
There
were further expectations that Spain was close to requesting a bailout
following media reports the previous day that only Germany was now
resisting an early move. Prime Minister Rajoy did state that there was
harmony between the central government and regions, but markets were
broadly focussed on the bailout situation and Rajoy bluntly stated that a
request was not imminent.
There was some increase in tensions
surrounding the ECB bond-buying programme with increased speculation
that it could be declared illegal and that there was the possibility of
legal action by the Bundesbank as underlying stresses remained high.
There were mixed readings for the latest Euro-zone PMI data
with the Italian services data figure for example stronger than
expected, but the net tone was generally weak with particular concerns
surrounding a sharp downturn in France and Spain. Markets have been
extremely uneasy surrounding Spanish prospects for months and confidence
in the French economy has also deteriorated amid fears that they could
start showing the same vulnerability as peripheral economies.
Uncertainty
surrounding Spain continued with the Madrid government concerned over
the terms of any loan package and warning over the threat to Euro
stability. There were further uncertainties surrounding Greece with
Finance Ministry suggesting that there were still big differences
between the government and troika over austerity measures. The troika
also suggested that GDP could contract by a further 5% in 2013.
As
expected the ECB left interest rates on hold at the latest council
meeting with the benchmark rate at 0.75% and the deposit rate left at
zero. President Draghi’s news conference was relatively subdued. He
continued to emphasize the need for conditionality in the bond-buying
programme, although also insisted that conditions did not need to be
punitive.
Draghi was generally downbeat over the economic
outlook with the potential for growth and inflation forecasts to be
lowered even with headline inflation set to remain above 2.0% through
the remainder of this year.
Yen:
The Bank of Japan will
remain under strong pressure to enact even more quantitative easing,
especially with demands for the yen to be weakened and there is
increased unease within the Finance Ministry with demands for the buying
of overseas bonds. Markets remain very uneasy over the US and
Euro-zone fundamentals which will still provide some degree of yen
protection, especially if global growth concerns intensify.
The dollar pushed
to highs near 78.70 against the yen during Thursday, supported by a
general improvement in risk appetite, but was unable to sustain the
gains and weakened back to the 78.30 area.
New Finance Minister
Jojima stated that the Finance Ministry and Bank of Japan would work
together to beat deflation which had some negative yen impact,
especially as it reinforced speculation that the Bank of Japan could
embark on fresh monetary easing at this week’s policy meeting.
There
was uncertainty surrounding the monetary policy decision, especially
with underlying pressure for government action. The pressure on the
bank and unease over the deflation threat was illustrated by attendance
at the meeting by the Economy Minister for the first time in nine years.
In the event, the Bank of Japan announced no further policy moves with
quantitative easing held steady. The yen strengthened to highs in the 78.30 area against the dollar following the decision.
|
|
| Sterling |
Although
there will be expectations of an improved third-quarter economic
performance, there will also be unease that the economy will falter
again during the fourth quarter. There will be speculation that the Bank
of England will sanction further quantitative easing in November. For
now, in relative terms, Sterling should be able to gain some
protection from the aggressive monetary action elsewhere, especially if
there is any sign of improved UK growth. It will still be difficult for
the UK currency to gain strong support.
Sterling
found support below 1.61 against the dollar and rallied back to the 1.62
area despite net losses against the Euro as it dipped to two-week lows
near 0.8050.
The latest manufacturing PMI data was weaker
than expected with a retreat to 48.4 for September from a revised 49.6
the previous month and this was the fifth successive reading below the
50 benchmark. The latest consumer lending data was also weaker than
expected with a net decline as consumer credit contracted for the second
successive month. The services-sector data recorded a decline to
52.2 for September from 53.7 the previous month. There was some
disappointment surrounding the release, although there will be some
relief that the data held above the 50 level and also out-performed the
Euro-zone area.
The latest housing equity withdrawal data
recorded a net repayment of housing debt for the 17th successive quarter
and at the highest rate since the second quarter of 2011 which will
continue to be a drag on the consumer spending outlook.
As expected, the Bank of England
held interest rates at 0.50% at the latest policy meeting and the
amount of quantitative easing was held steady at £375bn. There were
widespread expectations that the MPC could consider further action at
the November policy meeting which had some impact in curbing Sterling
demand.
The latest housing data was weaker than expected
with the Halifax Bank reporting a second successive monthly decline in
house prices with a 0.4% for September from a revised 0.5% dip the
previous month.
Swiss franc:
Medium-term
fears over the impact of quantitative easing will maintain the
potential for defensive capital inflows into the Swiss franc. This will
be particularly important if there is any increase in stresses between
the core and peripheral economies which will maintain fears over a
potential break-up within the Euro-zone.
The dollar was
unable to hold above the 0.94 level against the franc during the week
and retreated to lows near 0.9300 as the Euro found support in the
1.2085 region on the cross and moved back above the 1.21 level
There
was a weaker than expected PMI release of 43.6 for September from 46.7
previously which increased doubts surrounding the economic outlook and
offset the impact of a stronger than expected retail sales release.
The Swissmem industry group
warned that it would be catastrophic for the economy if the Euro
minimum level was abandoned. The latest reserves data recorded an
increase of close to CHF9bn which suggested that pressure on the Euro
had eased, but was still an important market factor.
|
|
| Australian dollar |
The Australian dollar remained under pressure during the first half of the week and dipped to re-test early September lows below the 1.02 level.
The Reserve Bank of Australian
cut interest rates by 0.25% to 3.25% which had a negative impact on the
currency. The data release were also generally negative with a weaker
than expected reading for retail sales and a sharply wider than expected
trade deficit as commodity exports came under pressure.
The currency gained
some degree of relief from a generally weaker US currency and an
improvement in risk appetite as central banks maintained an aggressive
liquidity stance with some expectations of further reserve
diversification into the Australian currency.
Continuing vulnerability in the Chinese and global economy is likely to keep the Australian dollar generally on the defensive, especially given domestic vulnerability.
Canadian dollar:
The
Canadian dollar drifted slightly weaker during the week as a whole, but
the currency did find support on retreats towards the 0.99 level and
moved back to the 0.98 level
Oil prices recovered after a
sharp decline which provided relief for the currency and there was
reduced underlying demand for the US currency. There were no major
Canadian economic releases during the week.
Net monetary policy
trends should be supportive, but it will still be difficult for the
Canadian dollar to make significant gains given persistent global growth
doubts.
Indian rupee:
The rupee was
able to maintain a firm tone during the week and pushed to highs beyond
51.50 against the US currency, the strongest level since mid April.
The
government announced plans to allow increased foreign investment into
the financial sector which had an important positive impact for the
currency. There were further inflows into equities, supported by
investment expectations and a general improvement in risk conditions.
Dollar
vulnerability and improved risk appetite will continue to offer
near-term rupee support, but the currency is liable to be close to a
near-term peak.
|
| Hong Kong dollar |
The Hong Kong dollar drifted generally weaker and dipped to lows in the 7.7570 area before reversing course and strengthening to beyond 7.7550.
The currency gained
support from a wider improvement in risk conditions and there was
important underlying support from the improvement in global risk
appetite.
The Hong Kong dollar will continue to gain near-term
support from the very loose US monetary policy with medium-term
speculation surrounding the peg liable to increase.
Chinese yuan:
The Chinese markets were closed for the one-week national holiday.
|
|
No comments:
Post a Comment