FX markets focus has been on the NZD

Market movers today

• In the euro area, the main event will be the release of preliminary German consumer prices for September. We expect HICP inflation to stay unchanged at 0.8% y/y but for the euro area as a whole we still expect the inflation data, released tomorrow, to show that inflation in September eased to a new cycle low of 0.3% y/y on the back of lower energy prices.

• In the US focus will also be on inflation with the release this afternoon of the PCEdeflator – Fed’s preferred inflation measure. We expect inflation to ease to 1.4% y/y in August from 1.6% y/y, underscoring that inflationary pressure has again started to ease and that inflation remains below Fed’s 2% target. Personal consumption is expected to have increased a solid 0.5% m/m in August despite relatively subdued income growth.

• We have a very eventful week ahead of us where focus will be on the ECB meeting on Thursday and ISM-manufacturing and the September labour market report in the US on Friday.

Selected market news

Asian markets are mixed this morning but with Hong Kong down close to 2% following clashes between the police and democracy protestors. The Hang Seng Index has lost 1.9% overnight to erase its gain for the year and the HKD has weakened further against the dollar.

The ‘Occupy Central’ campaign supported student-led protests on Sunday, bringing forward a mass civil disobedience campaign scheduled to start on Wednesday according to the BBC. The protests, which are the worst since China took back control of the former British colony two decades ago, are a response to the Chinese government’s decision that it will allow direct elections in Hong Kong but that voters will only be able to choose from a list of pre-approved candidates.

The impact on financial markets should be dependent on the likelihood of the protests to spread to mainland China and on the likelihood of protests dragging out and affecting business activity in Hong Kong. This adds one additional uncertainty for investors to consider when investing in emerging Asia on top of the uncertainty related to the slowdown in the Chinese economy.

In FX markets focus has been on the NZD, which has fallen below 0.78 against the USD after the Reserve Bank of New Zealand said that it had sold a net NZD521m in August, its most aggressive selling since July 2007. The central bank has previously referred to the level of the NZD as ‘unjustified’ and ‘unsustainable’ and it will now be interesting to see if interventions will be continued.