By GCI Fx Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
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The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4810 level and was capped around the $1.4915 level. The major news in the markets today revolved around the U.S. October non-farm payrolls report where it was indicated the unemployment rate jumped to a 26-year high of 10.2%, far above the 9.8% prior reading and above expectations. Similarly, the change in non-farm payrolls was off 190,000, worse-than-expected and worse than the positively-revised 219,000 print in September. Wages data came in stronger-than-expected at +0.3% m/m and +2.4% y/y and average weekly hours remained steady at 33.0. These data evidence a deteriorating labour force though some economists cite the deceleration in job losses as proof of a possible forthcoming inflection point. Other data released in the U.S. today saw September wholesale inventories off 0.9%. down from the prior reading of 1.3%, while September consumer credit was off US$ 14.8 billion, down from the prior reading of –US$ 12.0 billion. After the non-farm payrolls data were released today, the fed funds futures market indicated the Fed would lift its target fed funds rate to 0.31% by the middle of 2010, down from 0.33% before the data were released. In eurozone news, German Chancellor Merkel pessmistically noted “We aren’t at the point yet where we can say that, internationally, we have taken the regulatory precautions so that such a crisis is not repeated.” Data released in Germany today saw September manufacturing orders climb 0.9% m/m, the seventh consecutive monthly improvement, while the rate was off 13.1% y/y. The Federal Open Market Committee’s interest rate decision was released this week in which officials noted the economic recovery continues and pared back some of their emergency stimulus programs. The Fed continues to make it abundantly clear that rates are likely to remain unchanged for some time. Euro bids are cited around the US$ 1.4445 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥89.60 level and was capped around the ¥90.85 level. Data released in Japan overnight saw the September diffusion-based leading index fall back to 80.0 from 81.8 in August while the coincident index rallied to 94.4 from 90.0. On a composite basis, the leading index rallied to 86.4 and the coincident index improved to 92.5. These data suggest the Japanese economy is improving. Bank of Japan Deputy Governor Yamaguchi reported the central bank believes the economy “will keep picking up at a moderate pace” and added “the chance that the economy will have a second dip is small.” Minutes from the Bank of Japan Policy Board meeting from 13-14 October were released yesterday in which policymakers noted they’d work to make sure investors realize the removal of some emergency stimuli program does not mean official interest rates will rise. The minutes noted the central bank plans to “maintain the accommodative financial environment.” BoJ Governor Shirakawa yesterday reported it is “unlikely that the decline in prices will induce downward pressure on economic activity.” Vice finance minister Minezaki called on the government and central bank to discuss the real economic threat of deflation. The central bank and government remain at odds over the removal of monetary accommodation. Bank of Japan Governor Shirakawa this week continued to talk up Japan’s economy, saying “given that the emerging and commodity-exporting economies are likely to continue growing at high rates, risks have been becoming balanced, compared with a situation in early spring when risks were generally tilted downside.” On interest rates, Shirakawa added “The Bank of Japan declared an end to the state of emergency, but it will stand pat until the economy returns to normal. The bank will probably continue its super-low rate policy through early 2011.” BoJ’s Policy Board last week predicted core consumer prices will decline 1.5% in the year ending March 2010, decline 0.8% in the fiscal year ending March 2011, and decline 0.4% in the fiscal year ending March 2012. The central bank last week reported it will stop its purchase of corporate debt and commercial paper at the end of 2009. BoJ Policy Board’s next interest rate decision is scheduled for 19 November. The Nikkei 225 stock index climbed 0.74% to close at ¥9,789.35. U.S. dollar offers are cited around the ¥94.75 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥133.20 level and was capped around the ¥135.15 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥148.40 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥88.15 level. In Chinese news, the U.S. dollar weakened vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8194 in the over-the-counter market, down from CNY 6.8196. People’s Bank of China official Jiao yesterday reported new bank loans growth may accelerate in November and December. PBoC official Guo reported the central bank will keep liquidity “reasonably abundant.” Traders continue to anticipate the yuan will appreciate and this has resulted in large sales of U.S. dollars by Chinese banks to the central bank, resulting in a scarcity of dollars. In fact, six-month dollar funding costs have tripled over the past two months.
Daily Market Commentary provided by GCI Financial Ltd.
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