The risk rally appears to run out of steam in Asia though


MAJOR HEADLINES – PREVIOUS SESSION

  • NZ Oct. Business PMI out at 50.6 vs. revised 51.5 prior 

  • NZ Sep. Retail Sales out at +0.2% m/m vs. +0.4% expected and +1.1% prior 

  • NZ Sep. Retail Sales ex-autos out at flat vs. +0.4% expected and +1.2% prior 

  • JP Oct Dom. Corp. Goods Prices out at -0.7% m/m, -6.7% y/y -0.1%/-6.0% expected and revised flat/-0.8% prior resp. 

  • AU Nov. Consumer Inflation Expectations out at 3.2% vs. 3.5% prior 

  • AU Oct. Employment Change out at +24.5k vs. -10k expected and revised +39.8k prior 

  • AU Oct Unemployment Rate out at 5.8%, as expected, vs. 5.7% prior 

  • JP Oct. Condominium Sales out at -20.1% y/y vs. 26.2% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • Sweden CPI (0830) 

  • US Treasury’s Geithner to speak in Singapore (0830) 

  • EU ECB Monthly Report (0900) 

  • EU Euro-zone Industrial Production (1000) 

  • Swiss ZEW Survey (1000) 

  • US Weekly MBA Mortgage Applications (1200)

  • CA New Housing Price Index (1330) 

  • US Weekly Jobless Claims (1330) 

  • EU ECB’s Trichet to speak (1900)

Market Comments:

With the NY session expected to be quiet due to the Veterans Day holiday, it was left to GBP to steal the limelight during the European session. The Bank of England’s quarterly inflation report continued the tradition of inspiring violent knee-jerk reactions of late and the dovish content sent GBP crashing. While the BoE did raise growth and inflation forecasts, Governor King acknowledged that there were big downside risks for the UK economy and maintained an open mind to the need for further quantitative measures. GBP was trashed, though King noted that GBP weakness would help the economic rebound (however we don’t appear to have seen any sign of that yet despite an underperforming pound over the past few months!).

Aside from GBP, the early session featured general “risk-on trades” with EUR again testing the previous high of 1.5063 (failed at 1.5049) and AUD touching new 2009 highs. Gold was also in the frame with a new all-time high. However, Wall St appeared to run out of oxygen above 1,100 on the S&P and retreated into the close bringing the dollar a touch higher into the close. As a result, Asia entered the frame with most pairs at similar opening levels to the past three sessions.

The release of the Australian employment report for October provided the excitement for the morning. A very strong report with another 24.5k jobs added on top of September’s revised 39.8k, a total surprise compared to the -10.0k expected, and reignited talk of a possible rate hike at the December RBA meeting. Certainly markets interpreted the data that way, and AUD short-term yields bounced some 10bp and the AUD jumped a quick 50 points against the US dollar. Despite the better employment change numbers, employment edged up to 5.8%, as expected, and no doubt the pessimists will point out that the bulk of the improvement came in the part-time category (21.5k vs. +2.9k in the full-time category), but nevertheless a solid report.

Australian Treasurer Swan was on the wires shortly after the data release with an attempt to downplay the strength of the report. He focused more on the uptick in unemployment to 5.8% and warned that unemployment is likely to rise further as the effect of the government’s stimulus measures wanes (he reckoned that the impact of the measures peaked in June).

Early Asia also focused on the Yuan story that emerged late yesterday. With the APEC meeting in Singapore gathering pace, and US President Obama’s first visit to Asia, the view that China may hint at allowing the Yuan to appreciate also featured on the front page of the FT. Coming on the back of the PBOC’s quarterly report, it should still be noted that any moves would be in a “proactive, controlled and gradual manner and based on international capital flows and movements in major currencies”, according to PBOC wording. It has been noted that the PBOC does not have the final say on either the exchange rate level or its trading band. That is more likely by decision makers at State Council level and would expect to hear comments from the level first if there is a change in policy. Nevertheless, hopefully there is no smoke without fire and it’s a step in the right direction.

Apart from the AUD influence, other currency pairs remained range-bound in Asia though risk appetite did flip at lunchtime and the afternoon session saw equity markets falling into the red. GBP led the charge lower but EUR and AUD a tad laggard. Data releases in Europe include Sweden CPI, Euro-zone industrial production while the North American session features Canada’s new house price index and the US weekly jobless claims, with the market looking (hoping) for a number below 500k for the first time since January this year.