05 October 2010 at 8:08 GMT
Economic indicators are not too abundant Tuesday, but eurozone retail sales and US ISM non-manufacturing will still give interesting clues as to the development in the two economies. We look for the non-manufacturing survey to accelerate from August’s slump to 52.5 from 51.5. The service sector seems to have recovered somewhat in September and that should be visible in today’s number.
In overnight developments the Australian and the Japanese central banks surprised markets overnight with dovish actions. The former kept rates unchanged and the latter set up a fund to buy government bonds and changed its target rate from 0.1% to 0-0.1%.
The Australian central bank unexpectedly kept the rate steady overnight at 4.5%, but did hint that a hike would be needed sooner or later as China is still growing as a solid pace. It was the fifth straight month without a rate hike as consumer spending is slowing down, and put the Aussie under pressure.
The Bank of Japan also had a few surprises up its sleeve as it initiated so-called ‘comprehensive monetary easing’, which means that the bank will buy JPY 5 trillion of government bonds through a fund. In addition, the bank changed its target rate from 0.1% to the range of 0-0.1%. Stocks like the efforts at the moment, up roughly 1.9% in the Nikkei.
In the US yesterday, pending home sales showed the housing market is stabilising to some degree – albeit at a very low level. Pending home sales grew at a monthly rate of 4.3% MoM, which points to further improvement in existing home sales. But while sales are stabilising, we expect prices to continue down for the rest of the year.
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