GBP under the cosh again as IMF report highlights possible credit shortage


MAJOR HEADLINES – PREVIOUS SESSION

  • CA Jul. GDP out at flat m/m vs. +0.5% expected and +0.1% prior

  • US Q2 GDP revised to -0.7% q/q vs. -1.2% expected and -1.0% prior

  • US Q2 Personal Consumption out at -0.9% vs. -1.0% expected and -1.0% prior

  • US Sep. Chicago PMI out at 46.1 vs. 52.0 expected and 50.0 prior

  • US Sep. Milwaukee NAPM out at 58.0 vs. 56.0 prior

  • AU Sep. AiG Performance of Manufacturing Index out at 52.0 vs. 51.7 prior

  • JP Q3 Tankan Lge Manufacturers Index out at -33, as expected vs. -48 prior

  • JP Q3 Tankan Lge Manufacturing Outlook out at -21 vs. -26 prior

  • JP Q3 Tankan Non-Manufacturing Index out at -24 vs. -26 expected and -29 prior

  • JP Q3 Tankan Non-Manufacturing Outlook out at -17 vs. -22 expected and -21 prior

  • JP Aug. Retail Trade out at +1.0% m/m, -1.8% y/y vs. +0.3%/-2.4% prior and +0.5%/-2.4% prior resp.

  • China Sep. PMI Manufacturing out at 54.3 vs. 55.0 expected and 54.0 prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • GE Retail Sales (0600)

  • Swiss SVME PMI (0730)

  • GE PMI Manufacturing (0755)

  • EU PMI Manufacturing (0800)

  • UK PMI Manufacturing (0830)

  • EU Euro-zone Unemployment Rate (0900)

  • Swiss SNB Quarterly Bulletin (0900)

  • US Challenger Job Cuts (1130)

  • US Personal Income/Spending (1230)

  • US Initial Jobless Claims (1230)

  • US Fed Chief Bernanke to testify (1300)

  • US ISM Manufacturing/Prices Paid (1400)

  • US Construction Spending (1400)

  • US Pending Home Sales (1400)

  • EU ECB’s Stark to speak (1845)

  • US Treasury Secretary Geithner to speak (2045)

  • US Fed’s Pianalto to speak (2130)

  • US Fed’s Lockhart to speak (2130)

Market Comments:

The dollar finished Q3 with mixed feelings after early fixing flows had pressured the greenback, but later US data continued its theme of generally disappointing and the dollar was able to stage a modest comeback. While markets could garner some positives from the upward revision to Q2 GDP numbers (to -0.7% q/q from -1.0% previously), it was a disappointing ADP private employment report and disastrous Chicago PMI number that gave the dollar some clearance.

Currency-wise it was the GBP and CHF that attracted the most attention. GBP was buoyed by an earlier uptick in UK confidence and a reportedly sizeable fix order to sell EURGBP. GBPUSD managed a strong rally before reversing sharply following the ADP numbers. There was also heavy market talk that the SNB was actively intervening in the EURCHF as the pair jumped from 1.5080 to 1.5240 in short order.

The Asian session was active, but not aggressively so as China begins a one week holiday and Hong Kong was off for the day. Japanese data was generally better than expected with the Tankan numbers mostly posting a less-negative number for both present and outlook sentiments, the second month of quarterly improvements in a row. Reaction in JPY markets was, however, markedly reserved. GBP again caught the attention after the UK Times reported that the IMF had named Britain as one of the countries most vulnerable to a credit shortage between now and the end of next year. In its closely watched Global Financial Stability Report, the IMF said that British companies and households faced far bigger shortfalls in the availability of credit than in other economies.
Markets were slow to react, but eventually pushed GBPUSD back through 1.60.

In other data releases, Australia’s manufacturing sector expanded for the 2nd consecutive month with AIG-PW's Performance of Manufacturing Index (PMI) rising a further 0.3pts to +52.0 in Sept - the highest level since Dec 2007. The index continued to nudge higher above the 50/50 make or break line for the first time since May 2008, with the surveys measure of employment impressing by leaping 9.2pts to +49.7. New orders shrank by 9.3pts after rising an accumulated 23.7pts in the past 2 prior months but still remained above expansionary territory at +51.0. In all, the survey is another encouraging sign of continuing growth off earlier near recession lows.
Manufacturing accounts for approximately 10% of GDP and the workforce, and seen supporting RBA Stevens’ hawkish view that rates will eventually need to be raised from their emergency low levels.

PMI data from around the world is the major data focus for today, with releases from the Euro-zone, UK and Switzerland on tap in Europe followed by the ISM manufacturing report in the US. Prior to that we have the weekly initial and continuing jobless claims, possibly less optimistic following yesterday’s weak ADP report, but tomorrow’s non-farm payroll release will grab the most attention.