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Daily Forex Commentary

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How will the Plan be received?

Mon, Sep 29 2008, 06:16 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The rescue plan was on Friday without doubt the dominating theme in the financial markets.
It soon became clear that the authorities would not be able to finish the plan before the weekend and it had a disappointing effect among market participants. However, on Sunday congressional leaders agreed on a draft that will allow the US Treasury to buy up to $700 billion of troubled debt securities from the banks. The plan will be sent to Congress today and hopefully President Bush will be able to approve it later on. The draft bill is entitled as the “Emergency Economic Stabilization Act of 2008” and immediately provides $250 billion, another $100 billion are available if requested by the president, and the Congress will have the authority to approve the remaining $350 billion. In return for buying up trouble securities from the banks, the US Government will receive stakes in the companies participating in the plan. Moreover, the plan seeks to limit executive compensation. The first reactions in the FX market are not all that positive. Hence, we see the low-yielders (JPY and CHF) strengthening whereas the highyielders (AUD and NZD) are under a slight pressure. Under a slight pressure are also the Scandinavian currencies and the euro. The pressure on the Scandinavian currencies can probably be related to the features of the rescue plan where the weakening of the euro is probably more related to the partial nationalization of Belgium Dutch financial group, Fortis. The Belgian, Dutch and Luxembourg governments are injecting €11.2 billion in the company and in return receive a 49% stake in the Fortis units in the respective countries. The 6th largest US Bank, Wachovia, late on Friday put itself up for emergency sale.
The bank went from being the hunter to the hunted in less than a week. How ironic is that? Hence, we are expecting yet another “interesting” day.

Emerging Markets

By the Emerging Markets Team

US politicians reached an agreement on the US rescue package but the plan still needs to be formally approved. The excitement following the package is however quite limited as markets are worrying if obstacles will occur in the further process of approving the package and whether the size of the package is going to be big enough. Another point of concern is how the financing of the package is going to affect the US economy. So what was going to be a huge relief for markets now seems to be only short lived. On top of that the financial crisis has now hit Europe again. The approval of the package can provide short term support for EM currencies but looking a few days further ahead the risk on EM currencies will still be on the down side. Looking at the local data today has rate announcement from Hungary on the agenda. Our call is for the rate to be left on hold at 8.50 % and this is in line with consensus. The rate announcement is likely to turn out to be a non-event. Focus will be on the following comments and whether these will give us hint on how close we are to cuts in the key rate are.

Today’s Key Events

• 10:30 Consumer Credits, GBP

• 11:00 Consumer Confidence, EUR

• 14:30 Personal Income, USD

• 14:30 Personal Spending, USD

• 01:01 GfK Consumer Confidence, GBP

• 01:30 Unemployment, JPY

• 03:30 Retail Sales, AUD

• 03:45 FED’s Hoening speaks, USD

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Published on  Mon, Sep 29 2008, 06:23 GMT