Japan’s MOF says USDJPY move a reflection of USD weakness, not JPY strength – so market sells some more…..


MAJOR HEADLINES – PREVIOUS SESSION

  • CA Aug. New Housing Price Index out at +0.1% m/m vs. +0.2% expected and +0.3% prior

  •  US Weekly ABC Consumer Confidence out at -48 vs. -45 prior 

  •  NZ Sep. REINZ House Sales out at +43.7% y/y vs. revised +39.3% prior 

  •  AU Oct. Westpac Consumer Confidence out at +1.7% vs. +5.2% prior 

  • JP Sep. Dom. Corp. Goods Price Index out at +0.1% m/m, -7.9% y/y, both as expected, vs. flat/-8.5% prior 

  • China Sep. Exports out at -15.2% y/y vs. -21.0% expected and -23.4% prior 

  • China Sep. Imports out at -3.5% y/y vs. -15.0% expected and -17.0% prior 

  •  JP Sep. Consumer Confidence out at 40.7 vs. 41.3 expected and 40.4 prior 

  • JP BOJ leaves key rates unchanged, upgrades its view on the economy


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • UK Claimant Claims (0830) 

  • UK Avg. Earnings (0830) 

  • EU Euro-zone Industrial Production (0900) 

  • US Weekly MBA Mortgage Applications (1100) 

  • CA New Motor Vehicle Sales (1230) 

  • US Import Price Index (1230) 

  • US Advance Retail Sales (1230) 

  • EU ECB’s Bini Smaghi to speak (1315) 

  • US Business Inventories (1400) 

  • US FOMC Minutes (1800) 

Market Comments:

It was a volatile session in currency markets overnight with GBP taking the lead in the movement stakes. Initial weakness for the pound (which hit cycle lows against the EUR) following soft inflation data for September gave way to a strong rebound after BOE’s Bean commented that the bank’s quantitative easing program is working and that the worst of the recession was past. He also indicated that the MPC will need to gradually remove monetary stimulus as the economy picks up.

In this regard, the RBNZ was in the headlines overnight when they announced that some of the liquidity measures that were put in place at the start of the global financial crisis would be removed. Granted, these facilities have not been used for a while but markets interpreted the move as a sign that the RBNZ is becoming less-dovish and may adopt a more neutral monetary policy stance at its October 29 meeting. NZD rebounded strongly on the back of this, ignoring the usual lamenting comments from NZ finance minister English about the strength of the Kiwi and its potential impact on the country’s recovery. Similar comments were expressed by Canada’s PM Harper on the strength of their own currency.

Fed speakers overnight maintained a cautious approach to the US’ economic recovery. Fed VC Kohn said the uncertainty on the economy was :quite high” but expects the economy to recover at a “moderate” pace in H2 before strengthening in 2010, with activity shifting more from inventory adjustment to demand-driven, while inflation remains subdued for some time. He added the FOMC saw such conditions as supporting “unusually low rates for an extended period”.

As Asia walked in through the door today, Intel had announced some strong quarterly earnings results after the Wall St close, and it was setting up to be another “risk on” session. The dollar started off on the back foot and never really stood a chance. Mid-morning comments from Japan’s Ministry of Finance appeared to give the “thumbs up” to the markets thinking after Minezaki said the recent move in USDJPY was more a reflection of a weak dollar than a strong JPY. He added that authorities should not intervene in FX markets just because the JPY was strengthening. That was enough to take USDJPY down through stops in the 89.30-40 level to test just below 89.0. Overall, against the index, the dollar slid to fresh 14-month lows.

The AUD was again a star performer, rallying to re-test the 14-month highs at 0.9125 after last night’s brief setback. A few inputs helped the AUD, with a fresh uptick in gold after the Taiwan central bank said it may put more of its reserves into gold, helping sentiment. China’s trade data also had a positive effect as both exports and imports contracted less than expected in September. Exports were down 15.2% y/y versus -21.0% expected while imports shrank just 3.5% from a year ago versus -15.0% expected. The final positive input came from latest consumer confidence data which still showed an increase for October even though the survey was held after the last RBA rate hike.

In other events in Asia, the BOJ left official rates unchanged at 0.1%, as expected, but upgraded its outlook for the Japanese economy by saying it was recovering, rather than showing signs of recovering last time. It added that financial conditions were increasingly showing improvement but did not tweak its corporate funding measures, something markets had suggested that may be rescinded given that its need is not so desperate these days and is slated to expire end-December.

The data slate today includes UK unemployment claimant claims and average earnings along with EU industrial production. In the North American session we see Canada new vehicle sales and US import price index, retail sales and business inventories. The Q3 reporting seasons gets into full swing later today, with JP Morgan the first financial to report.