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A mixed Asian session − risk off, then back on again

Fri, Sep 25 2009, 06:35 GMT
by Saxo Bank Strategy Team

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Early G20 communique reports suggest risk may make a comeback

MAJOR HEADLINES – PREVIOUS SESSION

• US Weekly Initial Jobless Claims out at 530k vs. 550k expected and revised 551k prio

• US Weekly Continuing Claims out at 6,138k vs. 6,183k expected and 6,261k prior

• US Aug. Existing Home Sales out at -2.7% m/m vs. +2.1% expected and +7.2% prior

• NZ Aug. Trade Balance out at -NZ$725 mln vs. -NZ$329 mln expected and revised -NZ$175 mln prior

• JP Aug. Corporate Services Price Index out at -3.5% y/y, as expected, vs. -3.4% prior

• SI Aug. Industrial Production out at +12.3% y/y vs. +5.0% expected and revised +17.0% prior

THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

• GE GfK Consumer Confidence (0610)

• JP Convenience Store Sales (0700)

• Swiss SNB’s Jordan to speak (0715)

• Sweden Trade Balance (0730)

• Sweden Household Lending (0730)

• EU Euro-zone M3 (0800)

• UK Total Business Investment (0830)

• Swiss KOF Economic Forecast (0930)

• US Durable Goods Orders (1230)

• US Pres Obama to make statement at G20 summit (1230)

• US Final Univ. of Michigan Confidence (1400)

• US New Home Sales (1400)

• Swiss SNB’s Hildebrand to speak (1645)

• EU ECB’s Orphanides to speak (1515)

Market Comments:

Markets were impressed by the US initial jobless claims data and this appeared to but a cloud over the USD bulls that had gathered during the Asian session yesterday. However, the euphoria failed to last and the greenback was back in favour as existing home sales data disappointed.

Further dollar support was garnered from the results of the auction of 7-year US Treasury notes which saw bidders more confident once the FOMC was out of the way. The $29 bln issue was heavily oversubscribed (bid/cover ratio at 2.79 times) resulting in a 3.005% yield versus a consensus 3.047%. Weak commodity prices also contributed to the dollar’s bid tone as gold slid back below the 1,000 mark and oil below $66.

Finally, the Fed’s announcement that it was to downsize a couple of its liquidity programmes (TAF and TSLF) in the coming months. While some interpreted the move as a further step towards an exit strategy, others suggested it merely reflected the improving situation in financial markets

GBP was once again the whipping boy in the ring, pressured initially by talk of a “crisis meeting” of economists next week to discuss the reasons for the pound’s decline but then knocked again as BOE Governor Mervyn King said “the fall in the exchange rate will be helpful” in rebalancing the UK economy and noted that the UK banking sector was not in good shape while the economy can only register “small growth” after a very large fall.

Activity in the Asian session was mostly witnessed by the early birds. Stop-loss triggers in GBPJPY saw GBPUSD slice through the 1.60 easily and we were soon visiting near 4-month lows at 1.5920. Elsewhere, the string of better-than-expected New Zealand data came to an end this morning when trade data for August disappointed. While imports were a tad stronger (+3.5% m/m) reflecting improved demand, exports unexpectedly plunged 13.6% m/m despite a better external situation, possibly a victim of the Kiwi’s recent strength.

Some of the first comments from the sidelines of the G20 meeting came from China this morning where it seemed to be talking up the dollar. China’s central bank said the stability of the major reserve currencies still needs to be supported, adding that the US should bear in mind the USD’s reserve currency status when setting policy. US Treasury Secretary Timothy Geithner had mentioned the same theme when saying a strong dollar was still “very important” to the US while expecting the dollar to remain the world’s primary reserve currency. One news bite that does not appear to have grabbed too many headlines came from the new Japanese finance minister reportedly during a meeting with Geithner that he was opposed to intentionally devaluing the JPY, or any other currency for that matter, and during the press conference, when asked whether shifting to a stronger JPY would support domestic demand by cheapening imported goods, he said he is not inclined to shift the currency in that way either, but leave it to market force adding that the public sector should not intervene in the market.

The first reports of the draft communiqué from the G20 summit are suggesting that authorities are not looking at an early withdrawal of stimulus measures to avoid a premature stifling of resurgent economies. The late Asian session is seeing a renewed risk appetite and the USD is retreating from its early morning highs as European players enter stage left. Looking ahead , data-wise German consumer confidence and Swiss KOF economic forecasts are on tap in Europe while the US sees durable goods, new home sales (could they be as bad as existing home sales?) and final Michigan sentiment. The key question whether the current USD rally is yet another minor temporary blip or the start of a more concerted, a deeper correction. We could be in for a volatile session.

Have a great F1 weekend, vroom-vroom from Singapore.

Published on  Fri, Sep 25 2009, 06:37 GMT

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