(Action Economics) - 06:25 EST Oil Action: Oil prices have held around $78 billion in European trade. News that OPEC could hike supply at its December meeting was also a negative lead and is likely to put a cap on any potential recovery in the near-term.
This week's crude stock data will be eyed once again for any potential recovery in demand, which has been sluggish despite ongoing economic recovery hopes. A Bloomberg survey has a median forecast for stock piles having increased by 1.5 million last week. As of 10:11GMT the December Nymex future was up 32 cents at USD 78.99 per barrel, after trading in a range of USD 78.48 to USD 79.00.
06:22 EST Gold Action: Gold drifted in to the $1040.00 area during the European morning. After heading up to $1043 in to the European session it came back under light pressure as short term accounts took their guide from broader dollar movement. A firmer dollar tone verus the Euro and Aussie was the catalyst for an easier tone and it remained around $1040.00 in to the N.Y. session. Yesterday's fall out in gold coincided with a fall in the Gold SPDR Trust by 1.22 tonnes to 1,106.874 tonnes, suggesting some investor profit taking during the pullback.
05:22 EST Hong Kong September exports narrowed to -8.6% year over year from -13.9% year over year, with imports -3.1% year over year after -9.8%, for trade deficit -29.1 bln HKD from -21.8 bln HKD in August. Exports climbed 5.9% month opver month NSA to the highest level since Nov-08, continuing to narrow from -23% year over year Feb, the steepest decline in thirty years of data. Domestic HK exports remain weak at -35.0% year over year from -37.3% year over year in August. It leaves in place a turnaround in port traffic in Hong Kong after the collapse in global trade at the end of last year, including a firming in Chinese exports following their sharp fall-off. Re-exports, accounting for some 80-90% of Hong Kong volume, rose +6.0% month opver month NSA in September, also to the highest since Nov-08, and narrowing to -7.8% year over year in September from -13.2% year over year in August, and -22.4% year over year in February.
05:08 EST Eurozone September M3 money supply growth decelerated to just 1.8% year over year from 2.6% year over year in August. This was much lower than our forecast and median for a rate of 2.2% year over year and the 3 months moving average, the ECB's preferred target, dropped to just 2.5, clearly below the ECB's reference value. The counterparts of M3 showed private sector loans falling 0.3% year over year, the first annual decline on record. The ECB has maintained that the slowdown in loan growth is mainly due to a dip in demand as companies scale back investment programs, but even Bundesbank president Weber has admitted that there is some risk of a full blown credit crunch and these numbers will add to pressure on the central bank to consider by-passing the banking sector with its special measures to beat the crisis.
04:36 EST Italian October consumer confidence unexpectedly fell to 111.7 from 113.6 in September. The breakdown showed declines in all categories, with consumers less optimistic about the general economic outlook, as well as the personal situation. Expectations had been for a renewed improvement, but the dip after at least 6 months of improvement highlights that downside risks remain, with rising unemployment starting to dent confidence not only in Italy, but also in Germany, as yesterday's data showed. The breakdown showed declines in all categories, with consumers less optimistic about the general economic outlook, as well as the personal situation.
03:15 EST China trade official sees no big Yuan move until significant export recovery, adding that trade will take 2-3 years to recover to pre-crisis levels.
03:07 EST A strong Euro s better than none at all, according to the FT. It argued that the significance of the pain that Europe is experiencing from a strong currency should not be should not be overstated. According to the FT half of eurozone members foreign trade is with other member countries, unaffected by the currency's external strength. "A very good thing, too: a strong common currency is better than none at all. Before, dollar strength would set off currency chaos by creating incentives for beggar-thy-neighbour attempts at weakening national currencies. Not only was this self-defeating; it also softened exporters market discipline, since relying on policy action became easier than raising productivity".
02:56 EST The U.S. welcomes the rise in the CNY but wants it to rise further, said American Commerce Secretary Gary Locke, who is currently visiting Beijing. George Soros describe earlier this month that some international currency relationships were dangerous, specifically highlighting the CNY's peg to the USD. Locke's remarks come ahead of President Barack Obama visit to China next month, while Locke is will be participating on Wednesday and Thursday in high-level trade talks, along with U.S. Trade Representative Ron Kirk and Chinese Vice-Premier Wang Qishan (as reported by CNBC). A top-level delegation from the eurozone is also due to visit China before year end too, and FX is sure to be a topic given that the EUR has borne the brunt of USD losses. China formerly revalued the yuan by 2.1% against the dollar back in July 2005 and let it climb by another 19% over the following three years. USD-CNY has been held steady around 6.8300 since.
02:37 EST Resrve Bank of India (RBI) maintained repo rate at 4.75% at its quarterly policy meeting Tuesday, as had been widely expected. However, the RBI also raised the statutory liqudity ratio for banks to 25% from 24% (effective 7-Nov) and ended a special repo facility for banks and financial institutions and an fx swap facility for banks. This is seen as a first step toward exiting from the expansionary monetary measures that the RBI implemented over the past year, when it had cut the repo six times during Oct-Apr for a cumulative 425 bps, before holding steady in July. Inflation had moderated on relief from the pullback in oil prices, but is now facing upward pressure on a run-up in food prices from the recent drought. Like central banks across the region, it is expected to remove the stimulus gradually.
02:32 EST BoE's Posen reiterated that the bank's asset purchasing is not posing an inflation risk, labelling those worried over a future surge in inflation from the BoE's GBP175 bln asset purchasing scheme as "nutters". Meanwhile, he stressed that Friday's weak GDP figures do not necessarily mean that the MPC will vote to increase its asset purchase target next month. "Even though there will be some people in the audience who will say 'Oh, Posen's a dove' this [data] doesn't necessarily imply anything for the forecasts. GDP is a backwards-looking indicator. And the issue is ... forward-looking" Posen said in his speech yesterday. Economic recovery will inevitable come, Posen noted, but the key question is the strength of the recovery. Overall, Posen's speech yesterday, combined with similar comments last week, indicate that he would be willing to raise the asset target further next week. Posen did not say whether he favoured an expansion of the programme, but said its impact should be viewed from a flow as well as a stock perspective, adding "QE policy, if needed in future, might increase its effectiveness by buying selected assets beyond gilts, as pursued by central banks in some other countries".
02:29 EST Europe is seen as a laggard in the M&A rebound in the coming months, according to a survey of corporate bosses published in the WSJ. The 'journal' said this reflects concern that the economic recovery in the region may be slower than the rest of the world, although clearly currency implications may be at play in this hypotheses as a stronger currency deters foreign investors. Conversely, Goldman Sachs were talking up the virtues of a weaker sterling yesterday, stating that M&A activity may surge due to the relative cheapness of U.K. goods and investment as it remains 22% undervalued on a "purchasing power parity" basis.
02:04 EST Japan Finance Minister Fuji said competitive devaluations would ruin the world economy and Japan is not in favour of a weak yen. He said that his previous comments should not be construed in this light, but also denied that he was against a weak yen and that previous comments were taken in the wrong way. He added that weak yen was better for exports, but policy should not be steered by this alone. Since the DPJ-led coalition took power Fuji's remarks fueled broad based yen gains after he intimated that Japan could live with a stronger currency. However, he had to backtrack from remarks after the speculative market were heavy USD-JPY sellers, which fueled concerns over Japan's economic recovery and from corporate Japan. Meanwhile, Fuji offered his opinion on the "weak dollar" story, suggesting that weakness is due to the low interest rate policy. Fuji said Geithner said the dollar should be strong, but the reality is it has not strengthened. However, this will not change Japan's policy on reserves, with Fuji stating that forex reserve policy may be supporting the dollar and it's natural to hold the strongest currency in Japan's forex reserves.
01:44 EST Oil Action: Oil managed to find a modicum of support after it recent losses extended below $79 billion following Monday's broad based shift in market sentiment. A weak equity market performance was the catalyst for shift in market positioning, which saw oil pull back further from last week's yearly high at $82 billion. News that OPEC could hike supply at its December meeting was also a negative lead and is likely to put a cap on any potential recovery in the near-term. This week's crude stock data will be eyed once again for any potential recovery in demand, which has been sluggish despite ongoing economic recovery hopes. Elsewhere, spot gold is consolidating ahead of the $1040 level after it recovered from early Asian lows of $1036.10. The move higher came in tandem with EUR-USD, which managed to post a small recovery from the 1.4845 area. Yesterday's fall out in gold coincided with a fall in the Gold SPDR Trust by 1.22 tonnes to 1,106.874 tonnes, suggesting some investor profit taking during the pullback.
01:36 EST Asia policy makers look to curb another potential bu billione, according to a Bloomberg news piece. Policy makers in South Korea, Hong Kong and Singapore have told banks in recent weeks they need to tighten lending standards ad central banks have also signaled a readiness to raise rates in the Asia region as the look to avoid another bu billione triggered by rising real-estate values.
23:08 EST Asian shares have taken a hit following the reversal on Wall St., which was linked to fresh concerns in the financial sector (BofA, ABN), short-covering on the dollar and an exit from bullish commodity bets. The N-225 dove 1.4%, while the Topix index turned 1.9% lower. While the Hang Seng tripped 1.5% lower, the S&P/ASX fell 1.2% and the Straights Times sank only 0.6%. In earnings news, Hitachi managed to trim its net loss sufficiently to inspire a 4% rally, while Astrellas Pharma dove after ceasing development of its arthritis medication. Exporters Honda and Canon were down ahead of earnings reports due later.
FX Overnight
The dollar traded on a supportive footing for the most part, with the pull back in U.S. and Asian equity markets fueling a reduction in risky positions, which benefited the dollar. EUR-USD traded under 1.4900 for a large part of the European morning and USD-JPY found persistent support on dips despite running in to exporter offers above 92.00. Sterling bucked the broader market trend and posted an impressive rally on heavy sovereign account interest, with Asian names noted in early exchanges and Middle Eastern accounts ramping Cable through 1.6400, which triggered a series of EUR-GBP stops layered under 0.9095.
GBP was boosted by sovereign accounts and real money names. Reserve management activity looks like a function of bargain hunting after Monday's broad dollar adjustment following the equity market slide, while real money managers have been active sellers of EUR-GBP after the cross suffered under the weight of broad based Euro elling. Asian and Middle Eastern names were heavily involved, which lifted Cable to 1.6438 highs, while EUR-GBP traded down to 0.9054. A protracted period of sterling gains looks unlikely, however, in light of November's MPC meeting, where an expansion of the APS looks more likely since last Friday's weak U.K. GDP release. However, the market is torn over the likely outcome after BoE's Posen said the number does not mean that the MPC will vote to increase its program next month. Posen said it is a backward looking indicator and the issue is forward looking. Range bound action looks likely in this respect, suggesting that Cable will respect the broader 1.6000-1.6700 range, while EUR-GBP's tone will be dependent on the euro's ability to sustain an upturn following Monday's retracement.
EUR-USD was forced back in to 1.4870 during the European morning amid a broadly firmer dollar tone. European equity markets traded on a heavier footing, but bucked the broader trend after BP results left a positve tone. Banking sector stocks experienced some selling pressure in Europe, which was a contination of Monday theme as capital raising concerns reared their head and this fueled a reduction in risky positions. EUR-GBP selling pressure was a leading influence on the dollar pairing as overstretched positioning fueled further selling and triggered stops layered under 0.9095. A Middle Eastern account had a strong influence on sterling early on following Asian central bank interest. Euro as supported by similar flows around 1.4880, but is eyeing a run on stops under 1.4930-40. Eurozone data has provided mixed leads, with French confidence rising to -35 in October, while Italian confidence unexpectedly fell to 111.7. Elsewhere, option strikes are noted at 1.4875 and could potentially influence if equity markets can stabilise.
CHF weakened amid good USD-CHF buying interest, which was reportedly executed by a German account and forced a move in to the 1.0200 area. The dollar buying interest was a reflection of broader interest, which came on the back of equity market weakness, although European stocks were helped by good results from BP and enabled Europe to buck the broader theme. The move higher in USD-CHF forced a EUR-CHF move up to 1.5165, but this is largely a symptom of dollar movement and sellers remain on strength, with offers tipped at 1.5180-85 and at 1.5200-10.
JPY maintained a supportive tone after USD-JPY came back under pressure in quiet European trade. Japanese exporter offers capped gains from 92.10 and the pair drifted back in to the 91.80 area. Heaviness in EUR-JPY was a leading influence, with the cross pressured by the general Euro elling pressure and traded down to 136.57. Meanwhile, GBP-JPY was boosted by strong Asian and Middle Eastern demand for sterling and traded towards 151.00, while AUD-JPY held steady on mooted fund bids and general sovereign demand for Aussie. JPY looks likely to remain support as equity market heaviness deters speculative positioning, while there is some speculation that investment trust maturities could lead to yen interest, which was a feature of the Asian morning session.
Fixed Income Overnight
European Morning Session
European debt futures are lower, despite gains in stock markets. Bunds initially opened lower and are still underperforming, despite weaker than expected M3 data, which showed the first annual decline in loans on record. Gilts seem supported by comments from BoE's Posen late yesterday, which downplayed inflation risks from the central bank quantitative easing measures, but also stressed that disappointing Q3 GDP figures do not necessarily mean that the MPC will vote for an increase in its asset purchase target next month. Debt futures remain volatile as markets continue to swing between recovery hopes and remaining growth concerns.
As of 9:57GMT the December 10-year Bund future is up 11 ticks on the day at 120.94, while the corresponding Gilt future is up 21 ticks at 118.00. In the cash market the 10-year Bund yield is down 2 bp at 3.33% and the Gilt yield is down 2 bp at 3.67%. By comparison the DAX is up 0.20% and the FTSE 100 0.11% on the day as of 9:43GMT.
Today's local data calendar highlighted the still mixed picture. Eurozone September M3 money supply growth decelerated to just 1.8% year over year (median 2.2%) from 2.6% year over year and loans to the private sector declined 0.3% year over year, which will add to fears of a full blown credit crunch in the eurozone. At the same time French consumer confidence improved to -35 from -36, as expected. Still to come the U.K. CBI Distributive Trades Survey should show an improvement in November expected sales to 10 from 3, with the reading for realized sales in October seen rising to 8 from 3. The calendar also has CBspeak from ECB's Stark and Riksbank's Nyberg.
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