The buck extended gains against the majors in NY trading as hope that the TARP bailout package will be resurrected had stock markets jumping for joy. US stocks jumped more than 5% as financials were heavily bid and gained a whopping 13% on the day. US bonds saw heavy selling as investors bought up risk and the 2-year yield jumped more than 30 bps to 1.96%. This flight to risk saw USD/JPY push more than 100 pips higher into a close near 106.30/40. Moreover, large portfolio re-balancing ostensibly led to firm USD demand from US real money accounts ahead of quarter-end.
Prospects for an ECB rate cut had Euro on the mat during the entire NY session. One major investment house is even projecting that the bank will cut rates to 4.0% by December and to 3.5% by the middle of next year. EUR/USD plunged roughly -240 pips towards the 1.4070/80 zone as the NY session came to a close. EUR/JPY weakened despite the flight to risk assets, with the pair shedding about -90 pips into the 1.4960/70 area.
The markets now await resolution on the discussions to expand the FDIC deposit insurance (from the current $100,000) and on altering mark-to-market accounting rules. Meanwhile, the House should be back in negotiations tomorrow and commentary from members as to the state of the bailout legislation should provide fodder for equity market volatility. It will be interesting to see how much of today's move was merely a quarter-end smoke screen.
Upcoming Economic Data Releases (Asia Session):
- 9/30/2008 23:30 GMT AU AiG Performance of Mfg Index SEP 47 - -
- 9/30/2008 23:50 GMT JN Tankan Lge Manufacturers Index 3Q 5 -2
- 9/30/2008 23:50 GMT JN Tankan Lge Mfg Outlook 3Q 4 -3
- 9/30/2008 23:50 GMT JN Tankan Non-Manufacturing 3Q 10 5
- 9/30/2008 23:50 GMT JN Tankan Non-Mfg Outlook 3Q 8 2
- 9/30/2008 23:50 GMT JN Tankan Large All Indust Capex 3Q 2.40% 2.50%
- 10/1/2008 1:30 GMT JN Labor Cash Earnings YoY AUG 0.30% 0.00%
