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Market Session Recaps

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London Session

Tue, Nov 3 2009, 11:28 GMT
by Forex.com Research Desk

FOREX.com

EUR/USD has broken down through 1.4700 and stocks markets are registering hefty losses across the board as the market takes risk off the table in the wake of another run of bad news from the banking sector and fears that most of the G-10 will only be able to manage lacklustre growth going forward. UBS has reported a greater than expected loss while the additional taxpayers funds which will be sucked into the UK's RBS make it the world's most costly bailout. The EU has announced its latest set of bi-annual economic forecasts.
The GDP projection for Eurozone 2009 growth is unchanged at -4.0%. The 2010 forecast at +0.7% represents an upgrade from the previous forecast of -0.1% m/m.
This is not a huge surprise, however. Economic data have shown Germany and France returned to growth in Q2 this year and more recent releases have suggested that a moderately paced economic recovery remains in place. 

The RBA did its bit this morning to encouraged risk reduction. As expected the RBA hiked interest rates by 25 bps. However, the threat of another 25 bp hike in December was swiped away by the remarks from Governor Stevens that higher rates would come 'gradually' and that the AUD's 29% gain this year may hurt exports and economic growth. Clearly there is no risk of rate hikes from the Fed, ECB and BoE this week. However, the market is dwelling on the topic of extraordinary policy measures that are in place and the pace at which they must be withdrawn. The fact that inflationary pressures are still absence provides a case for central banks to maintain their policy of very generous liquidity addition. However, there appears to have been a rise in scepticism about the absolute worth of some of these policies and this could argue in favour of them being gradually withdrawn. Access to cheap money has helped improve the profitability of many investment banks but the lack of reaction in money supply and in CPI indices suggests that the real economy is still not benefitting. The Fed's USD300 bln program of treasury bond purchases has already come to an end, the BoJ will stop buying bonds at the end of this year, the ECB may next year end its 12 mth cash auctions. Clearly the central banks will have to tread carefully while withdrawing these policies. Given expectations that the BoE will continue with QE this week, it is likely that it will proceed with at least a GBP 25 bln addition. A quick exit from these policies could have a drastic impact on confidence. This view was echoed this morning in the comments from the SNB's Jordon that the time for exiting from loose monetary policy has not yet come. 

UK data this morning was confined to a disappointing 46.2 print for PMI construction. The pound sold off at the European open the back of the RBS/Lloyds news though sterling has since benefitted vs the EUR as the latter is unloaded on the back of the reining in of risk appetite. The yen has been a major benefiter of the move back into safe haven, EUR/JPY has broken back below the 132.00 level, AUD/JPY is registering even stronger losses as the AUD licks its wounds following this morning comments from the RBA's Stevens. 

Gold rose overnight on the news that the Reserve Bank of India bought 200 metric tons of the metal from the IMF, though the stronger USD has subsequently taken the shine off the gold prices. 

This afternoon US factory orders, ABC consumer confidence and vehicle sales are due.

Published on  Tue, Nov 3 2009, 11:34 GMT