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Daily FX Market Commentary

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US equity markets closed in negative territory on Friday

Mon, Oct 26 2009, 08:02 GMT
by Danske Research Team

Danske Bank A/S

Key news

• US equity markets closed in negative territory on Friday. However, most Asian markets have risen this morning on the back of stronger-than-expected results from Toyota and stronger-than-expected growth in South Korea.
• IMF is delaying payments to Ukraine and one of the biggest US commercial real estate lenders files for chapter 11.
• No major movements in the global FX markets, the dollar is modestly weaker against EUR and YEN this morning. SEK stronger against the EUR

Markets Overnight

The US equity markets closed in negative territory on Friday, when the Dow lost 1.1% and S&P500 lost 1.2% on the back of weaker earnings results as well as softer US economic data. Furthermore, the problems continue in the US housing market as one of the biggest commercial real estate lenders in the US, Capmark Financial Group (formerly known as GMAC commercial holding) has filed for bankruptcy protection (chapter 11) after posting losses of USD1.6bn in Q2.Capmark is owned by firms including KKR and Goldman Sachs.

However, Asian stock markets rose on the back of stronger GDP data from South Korea and better-than-expected earnings results from Toyota, which reported an unexpected profit in Q3. South Korea posted its biggest gain in Q3 GDP since 2002, when it rose 2.9% q/q. Nikkeri is up 0.5% and Hang Seng is up 1.7% this morning.

The US bond yields however took little notice of the decline in the equity markets as yields continued to rise ahead of this week’s record-high auction of US Treasuries and an expected rise in US GDP in Q3. Furthermore, the US Federal Reserve is scheduled to end its USD300bn purchase programme of US treasuries on 29 October. Hence, 2Y US treasury yield rose above 1.0% for the first time in October. There is also speculation that US Treasury may extend the duration on US government debt by issuing more bonds relative to bills.

There have been modest movements in global FX markets. The dollar is weaker against euro and yen. EUR/USD is back above the 150-level this morning, while USD/JPY is below the 92-level. SEK has continued to strengthen against EUR on Friday and is trading below the 10.17-level this morning. EUR/NOK has been stable trading at the 8.33-level.

Problems are again arising in Eastern Europe.This time it is not the Baltic states, but Ukraine as IMF said it is waiting for the Ukrainian government to endorse a package of policy steps, including the veto of a wage and pension law, before releasing the next portion of a USD16.4bn loan. Ukraine had been scheduled to receive the fourth portion of the loan, but since the loan was renewed in May, Ukraine has failed to comply with the loan’s terms, including raising natural gas prices for households and adopting laws needed to stabilize the financial system.

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Published on  Mon, Oct 26 2009, 08:06 GMT