The back and forth choppiness continues as an initial rally in risk appetite today faded quickly as the first US equity trading session of the week got under way. EURUSD fell under 1.3000 after the earlier rally failed.
Japan’s Manufacturing PMI survey in October was the lowest since the April following last year’s Fukushima disaster, as the shocking drop in terms of trade suggests in September suggests that Japanese manufacturers may be adjusting output to deal with the drop off in demand from Chinese boycotting Japanese goods due to the Senkaku/Diaoyu islands dispute. The JPY was sharply weaker as the market took a second look at is reaction to the BoJ asset purchase announcements, which proved smaller than some of the larger estimates. I would suspect that JPY weakening might yet stumble in the near term if bonds continue to make a comeback and risk spreads begin to widen in general, particularly in the non-USD yen crosses, but certainly the background fundamentals for Japan and its currency are deteriorating after a report like this and as we wonder where this island dispute may lead in terms of further damage to the trade relationship between the two countries.
Norges Bank
Norges Bank was out today announcing that it would keep rates steady at 1.50% and explaining that it can’t hike rates because of the international environment of low rates and because inflation is no threat. Still, it certainly would like to hike rates for domestic reasons (raging housing bubble far greater than anything the US ever dreamed of seeing in its bubble cycle) but won’t do so. The short end of the Norwegian rate curve perked up a couple of bps on the Norges Bank meeting and on the announcement that Norges bank won’t sell NOK to buy FX for its oil fund.
Doh, Canada
The Canadian August GDP figure came in at an ugly -0.1% vs. the +0.2% expected, weakening CAD on the day and pushing USDCAD back above parity after a brief flirt below that key level earlier today. GDP data is ancient history, so from here it will be more about the overall direction in risk appetite and oil. The latter, in particular, is providing a pretty strong argument for a well-supported USDCAD for now as long as we remain below about 90 dollars/barrel on WTI (currently 86.50).
US Data
The US saw its final large regional manufacturing survey today, the Chicago PMI, which registered a 49.9 reading, its second consecutive reading below 50. Last month we had the odd combination of a huge downside surprise in the Chicago PMI and a large-ish upside surprise in the ISM. This month, we saw a misleading “improvement” in the Empire Manufacturing survey, a positive Philly Fed and another relatively negative Chicago PMI. Among the more minor regional surveys, we saw a relatively ugly and negative Richmond Fed survey, an awful and worst in 3 years Kansas City Fed, a reasonably neutral/good Dallas Fed and a horrible Milwaukee NAPM. How this can add up to a positive ISM overall number (current expectations at 51.0) I’m not quite sure, but then again, we got 51.5 last time. We’ll see tomorrow…
Looking ahead
It’s a crazy week with a massively disruptive storm in the US making a chaos of Wall Street and people’s lives all across the eastern seaboard of the US, not to mention the potential effects on the election, which is now less than a week away (finally!). Nasty choppiness would seem to be the order of the next several days, akin to what we’ve been seeing already, but the background music is increasingly discordant in the Euro Zone and I can’t help but think we would be trading somewhere else in EURUSD (lower) were it not for the US election distraction of the moment. Note the latest political difficulties with the coalition in Greece and the rising noise level on Italy as political posturing begins ahead of next April’s election, not to mention the 10.8% unemployment rate in October (and 11.6% for Euro Zone as a whole. ) Should EURUSD really be trading near 1.3000??
It’s notable that Spain’s current account registered its largest surplus reading in 14 years at EUR +1.2B in August as consumption has been so pinched off by the economic malaise that the current account has reversed all the way from an average -8 to -10 billion Euro’s a month back in 2007 and 2008. The same would have happened in the US by now if the Fed hadn’t indulged in so much QE money and it’s why the EURUSD trades at 1.3000 rather than parity.
Bonds look defensive again, after yields teased at key upside breakout levels just a week ago – one of the key reasons that risk aversion may remain the name of the game – I suspect far more due to uncertainties post-US election (regardless of the victor!) than due to the storm damage. But the risk aversion is not seeing any traction yet in AUDUSD and NZDUSD, where the weak JPY distraction and USD-traders-on-hold is possibly keeping the USD pairs in limbo for the moment, far more than they would be otherwise. If we modeled AUDUSD vs. risk appetite/rate spreads and certain commodities, I think we would come up with an entirely different price for the Aussie. But let’s see what happens if either 1.0400 or 1.0250 is taken out again and/or see which way things are headed post election. I still suspect there is a substantial reality check that must take place Down Under. Look for the Chinese PMI data to push the Aussie around in the Asian session tonight – there certainly is a lot of noise that China is on the up and up again, but I found this article rather intriguing today.
Economic Data Highlights
- Japan Oct. Markit/JMMA Manufacturing PMI out at 46.9 vs. 48.0 in Sep.
- UK Oct. GfK Consumer Confidence out at -30 vs. -28 expected and -28 in Sep.
- Australia Sep. Building Approvals rose +7.8% MoM and +12.4% YoY vs. -12.8% YoY in Aug.
- Norway Sep. Retail Sales out at +0.7% MoM and +0.4% YoY vs. +2.7% YoY in Aug.
- Euro Zone Sep. Unemployment Rate out at 11.6% vs. 11.5% expected and 11.5% in Aug.
- Canada Aug. GDP out at -0.1% MoM and +1.2% YoY vs. +0.2%/+1.7% expected, respectively and vs. +1.9% YoY in Jul.
- Norway Norges Bank left deposit rate unchanged at 1.50% as expected
- US Oct. Chicago PMI out at 49.9 vs. 51.0 expected and 49.7 in Sep.
- Australia Oct. AiG Performance of Manufacturing Index (2130)
- China Oct. Manufacturing PMI (0100)
- China Oct. HSBC Manufacturing PMI (0145)