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Daily Forex Commentary

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Politicians…

Fri, Sep 26 2008, 07:00 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday stock markets rose as negotiations in the US Congress on the infamous 700 bn USD bank bail out plan looked promising.
However all hope of an impending solution was lost as negotiations fell flat after a meeting in the White House between President Bush and the presidential candidates. At the meeting the Republican candidate John McCain supposedly threw his support behind an alternative suggested solution proposed by a group of conservative Republican lawmakers. Thus it seems that negotiations have turned into chaos.

To make matters worse the Seattle-based bank Washington Mutual was closed by regulators in what has already been named the biggest bank failure in US history. The bank collapsed as its credit rating was cut to junk, its stock price tumbled and customers withdrew 16.7 billion USD from their account since September 16th.
The third largest bank in the US, Morgan Stanley, said that it bought the deposits of Washington Mutual for 1.9 bn USD and that it would be business as usual on Friday morning. However there is no doubt that we are in for a rough day with a sustained pressure on credit markets and an unwinding of carry trades in the FX markets. Hence we prefer to maintain a neutral stance for the time being.

Emerging Markets

By the Emerging Markets Team

Financial markets were in a marginally positive mood yesterday as market participants were hoping for Congress to reach an agreement on the USD 700 bn. rescue package. Reports of an agreement having been reached were good news for the financial markets including EM.
But it turned out that a group of Republicans does not agree with the guidelines in the package and it still remains uncertain what the outcome will be. On top of that another US financial was in troubles and had to be taken over - JP Morgan buys Washington Mutual.
Hence what yesterday seemed to have the potential to become a positive day now seems to be yet another day with fragile markets.

Taking a look at the local stories the central banks in the Czech Republic and Romania chose to keep rates unchanged. We had expected a 25 bps cut in the Czech Republic. In spite of a weaker growth outlook and expectations of decreasing inflation, CNB chose to keep the rate unchanged because of the many uncertainties that are present in the financial markets at the moment. We still expect cuts of 50 bps in the key rate within the next 6 months. In Romania we had expected a 25 bps hike but it now seems that the central bank could be reluctant to hike further. There are no important data releases on EM today and focus will once again be directed towards the US and news on the rescue package.

Today’s Key Events

• N/A CPI from German federal states (DEM)

• 10:00 Retail sales (PLN)

• 10:00 Unemployment (PLN)

• 12:15 ECB’ Wellink (EUR)

• 14:30 GDP (USD)

• 14:30 Personal consumption (USD)

• 15:00 ECB’s Bini Smaghi speaks (EUR)

• 16:00 Trade balance (TRY)

• 19:15 ECB’s Wellink and Gonzalez- Paramo speaks (EUR)

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Published on  Fri, Sep 26 2008, 07:13 GMT