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Daily FX Market Commentary

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Slightly positive sentiment on financial markets ahead of today's Fed decision

Wed, Nov 4 2009, 08:14 GMT
by Flemming J. Nielsen

Danske Bank A/S

Key news

• Slightly positive sentiment on financial markets ahead of today’s Fed decision. The stock market is slightly higher, USD and JPY weaker and bond yields continue to edge higher.
• US auto sales stronger than expected in October.
• Disappointing retail sales in Australia support the view that the pace of monetary tightening will slow.

Markets Overnight

Financial markets are in a nervous wait-and-see mode before Fed’s announcement tonight. US economic data continue to come in better than expected. In October US domestic vehicle sales improved to 7.9m (consensus: 7.3m) following the slump to just 6.8m in the wake of the termination of the cash-for-clunkers programme.

In Australia retail sales unexpectedly dropped 0.2% m/m (consensus: +0.5% m/m) in September. This reinforces the view that Reserve Bank of Australia will slow the pace of monetary tightening substantially following its recent two rate hikes.

The Indonesian central bank as expected left its leading interest rate unchanged at 6.5% at today’s monetary meeting and said inflation would continue to ease in the medium term, suggesting it will not be among the first Asian central banks to tighten.

The US stock market yesterday closed up supported by economic data, higher commodity prices and the announcement of several takeovers. Hence, yesterday’s gain was mostly driven by resource stocks and industrials. Warren Buffet announced he has agreed to buy Burlington Northern Santa Fe and Stanley Works announced it will take over Black and Decker Corp. Asian stock markets are mainly taking their lead from the US stock market and are higher across the board this morning. In Europe Societe Generale reported better-than-expected Q3 earnings this morning.

US bond yields have edged higher and the yield curve steepened further in the wake of the positive sentiment returning to stock markets. Focus is on today’s FOMC meeting and some concern remains about supply in connection with US Treasury’s announcement of its refunding operations later today.

In the FX markets both USD and JPY have weakened overnight on the back of the improved sentiment in the market. AUD initially weakened on the disappointing retail sales data, but has since recovered some of the loss. In Scandinavia SEK has weakened slightly against EUR, while NOK has strengthened supported by higher crude oil prices.

The commodity market was markedly higher yesterday. Gold prices surged on the Indian central bank’s announcement that it will purchase part of the gold IMF is currently trying to get off its balance sheet.

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Published on  Wed, Nov 4 2009, 08:33 GMT