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Daily FX Market Commentary

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President Obama has nominated Fed Chairman Ben Bernanke for a second term

Wed, Aug 26 2009, 07:10 GMT
by Kasper Kirkegaard

Danske Bank A/S

Key news

• US equity markets were unable to hold on to strong early gains and the S&P500 ended the day just 0.2% higher - despite being supported by stronger-than-expected US confidence and home price numbers.
• Sentiment has picked up in Asia overnight; stock markets are higher, bonds under pressure, and pro-cyclical currencies bid.
• President Obama has nominated Federal Chairman Ben Bernanke for a second term. The reappointment has to be confirmed by the Senate.

Markets Overnight

For a second day US equity markets were unable to hold on to strong early gains and the S&P500 ended the day 0.2% higher after having increased by as much as 1.2% in early US trade. Stock markets were supported by strong US numbers released yesterday, as consumer confidence beat expectations by a landmark rising to index 54.1 and as home prices rose for a second month. While we believe it is still too early for prices to begin on a sustainable upwards trend, it is encouraging just to see signs of a stabilisation in home prices - not only for the prospects of a recovery in construction, but also for the recapitalisation process of the US consumer.

Asian markets have performed strongly overnight, with not only a rebound in the Chinese stock market, but also decent gains in Japan. Japanese trade numbers released this morning showed a continued improvement in exports (positive m/m volume growth rates), but also a small worsening of the trade balance due to a pick-up in imports.

US bond yields declined marginally in yesterday’s trade, but have started to move higher this morning in Asian trade as risk appetite is improving and stock markets performing. Today the US Treasury is scheduled to sell USD39bn of five-year notes. The 2-year auction yesterday was slightly disappointing with a bid-to-cover of 2.68 – higher than the average of the past 10 auctions, but still the lowest ratio since February.

The oil price collapsed in late US trade dropping more than USD2 per barrel after failing to break above the USD75 level. The crude oil contract for October delivery has recovered to above USD72 per barrel overnight.

On the FX market the dollar has strengthened slightly against the euro overnight taking EUR/USD back down to the 1.43 handle. EUR/USD has now spent a little more than a month trading in the 1.40-1.45 range. The dollar-block currencies are slightly bid this morning following pressure yesterday, as are the Scandies.

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Published on  Wed, Aug 26 2009, 07:17 GMT