News and views
The week started on a relatively quiet note, though there were good-size falls in EUR, GBP and CHF vs USD. US equities opened higher and remained there mid-afternoon NY. Broad improvement in risk appetite included a 36bp fall in 3mth USD LIBOR to 4.06%, its lowest fixing since 30 Sep. In testimony to a House committee, Fed chief Bernanke deemed suggestions of further fiscal stimulus to be “appropriate”, without endorsing specific suggestions. NZD/USD recovered from a dip to 0.6119 in London, rallying firmly back to the 0.6240-50 area in NY as the DJIA extended its gains to 240pts.
AUD/USD traded a roughly 0.6900 - 0.7040 range in London/NY, suffering amid heavy GBP and EUR selling but back to the higher end of the range in the NY afternoon.
EUR/USD had probed above 1.3500 in London but ran out of steam, retreating to the 1.3320 area in NY.
Equity gains and lower risk aversion lent less support to USD/JPY than might have been expected, with EUR/JPY selling seen in London. USD/JPY slipped from highs around 102.40 to 101.75.
Fed chair Ben Bernanke testimony. Looking very tired and drawn, the Fed chairman patiently dealt with a string of mostly ill-informed and pointless questions from law-makers in the House. His prepared testimony endorsed a further fiscal package to stimulate the economy.
US leading index rises 0.3% in Sep, but Aug revised down from –0.5% to –0.9%. The downward revision was due to orders and we suspect the assumption for Sep orders is also not weak enough so Sep will likely be revised down too (orders data not due till next week). Also the money supply component added almost 0.5 ppts to the Sep gain, which is probably a function of the recent financial turmoil and so is another reason to mistrust the apparently strong Sep signal.
German PPI accelerates to 8.3% yr in Sep. This surprise rebound from 8.1%yr in Aug was due to pre-announced utility bill increases offsetting the downward impact from crude energy prices.
UK public sector finances deteriorating. The Sep public sector net borrowing was £8.1bn, almost double the deficit position a year earlier. Full year borrowing in FY2008/09 will approach £60bn. There will be substantial further borrowing gains as the financial rescue packages hit the numbers.
Canadian wholesale sales fall 1.5% in Aug. This was the first fall since Feb, and was driven mainly by a sharp fall in autos.
Outlook
The 100bp cash rate cut we expect from the RBNZ on Thursday should help limit the scope of any NZD/USD rallies. At the margin, the lack of long NZD longs to be unwound still helps the currency versus AUD during risk aversion surges and vice versa.
