EUR edging closer to the psychological 1.50 mark


MAJOR HEADLINES – PREVIOUS SESSION

  • CA Aug. New Motor Vehicle Sales out at -0.3% m/m vs. flat expected and revised +5.2% prior

  • US Sep. Import Price Index out at +0.1% m/m, -12.0% y/y vs. +0.2%/-11.4% expected and revised +1.6%/-15.3% prior resp.

  • US Sep. Advance Retail Sales out at -1.5% vs. -2.1% expected and revised +2.2% prior

  • US Sep. Retail Sales ex-Autos out at +0.5% vs. +0.2% expected and revised +1.0% prior

  • US Aug Business Inventories out at -1.5% vs. -1.0% expected and revised -1.1% prior

  • NZ Sep. Business PMI out at 51.7 vs. revised 48.8 prior

  • NZ Q3 CPI out at +1.3% q/q, +1.7% y/y vs. +0.8%/+1.1% expected and +0.6%/+1.9% prior

  • AU Oct. Consumer Inflation Expectation out at 3.5%, unchanged from previously

  • China Sep. Actual FDI YTD out at -14.2% y/y vs. -14.35% expected and -17.5% prior

  • JP Aug. Final Industrial Production out at +1.6% m/m, -19.0% y/y vs. +1.8%/-18.7% prior resp.

  • JP Aug. Final Capacity Utilization out at +2.3% m/m vs. +3.9% prior

  • SI Aug. Retail Sales out at -5.2% y/y vs. -8.9% expected and -9.8% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • EU ECB Publishes Oct. Monthly Report (0800)

  • EU Euro-zone CPI (0900)

  • Swiss ZEW Expectations Survey (0900)

  • EU ECB’s Trichet to speak (1125)

  • CA Manufacturing Sales (1230)

  • US CPI (1230)

  • US Empire Manufacturing Index (1230)

  • US Initial Jobless Claims (1230)

  • US Philadelphia Fed Index (1400)

Market Comments:

While currency markets were a tad more hesitant in pushing the” risk on” theme during the NY session, Wall St embraced it and we saw the DJIA climb above the 10,000 mark for the first time since October 2008. Cycle highs were posted in EURUSD and AUDUSD but lower US Treasuries helped put a base under USDJPY after the FOMC minutes were published.

The minutes showed that committee members were a touch more restrained on economic recovery, sensing that one was under way but likely to be “quite restrained”. There was some discussion on the MBS purchase program with news that some members were open to expanding the program seeing early dollar selling but with the statement noting that some suggested tapering quickly and completing the purchases by year-end. Back to square one. On balance, the mood was that the Fed would stick to it “low rates for an extended period” theme.

Elsewhere, the US data came in strong: headline retail sales were down 1.5% m/m as the “cash for clunkers” program ended but ex-autos sales were a surprisingly strong +0.5% m/m. Q3 consumer spending gained 3% while the business inventory to sales ratio dipped to an 11-month low. UK data was again better than expected and momentum appears to be building to a surprise stop-loss-hunting GBP rally. Euro-zone data disappointed however with industrial production up only 0.9% versus 1.2% expected but this was easily forgotten in the EUR-buying frenzy within the weak dollar environment.

The Asian session took the lead from the antipodean countries with higher NZ CPI data the first trigger. Inflation rose 1.3% q/q and 1.7% y/y in the third quarter, driven by higher food prices, fuel and local authority rates. The surprise, combined with the first expansion in NZ manufacturing activity for the first time in 17 months in September, will bolster the case for the RBNZ to drop its easing bias at the next policy meeting and this helped the NZD higher to neat 15-month highs.

Then it was the turn of the AUD to follow suit after RBA governor Stevens came out with a number of hawkish comments in a speech on “The Conduct of Monetary Policy in Crisis and Recovery”. He said that the central bank could not afford to be too timid in raising interest rates especially after the expected downside risks to the economy had failed to materialize. He thought it was prudent to move away from the emergency “low” rate regime to a more neutral one, though was not specific about what level that might be. AUD yields surged even higher after the comments and AUD was able to post a new 14-month high above 0.92.

The moves in the antipodean currencies filtered down to the other majors to a lesser degree, though EUR edged ever closer to the psychological 1.50 mark and GBP pulled through resistance at 1.6025-30.

Today sees a few interesting data points to consider in the US with the first two of the major regional manufacturing surveys on tap (empire manufacturing and Philadelphia Fed survey) along with the weekly jobless claims numbers, which have started to indicate not so much doom-and-gloom on the jobs front, though still at elevated levels. Surveys suggest this week should be broadly similar to last week at 520k. CPI numbers also on the radar and might be interesting given some of the surprises we have seen around the globe of late.