Markets in limbo in Asia as Japan finance minister Fujii finds reverse gear for his comments
Australian interest rate markets taking on a more hawkish stance into year end
MAJOR HEADLINES – PREVIOUS SESSION
• US Aug. Chicago Fed nat. activity Index out at -0.9 vs. revised -0.56 prior
• US Dallas Fed Manuf. Activity out at -6.4% vs. -1.0% expected and -9.1% prior
• NZ Aug. Building Permits out at +1.7% vs. revised +4.5% prior
• JP Sep. Tokyo CPI out at -2.0% y/y vs. -1.8% expected and revised -1.7% prior
• JP Aug. National CPI out at -2.2% y/y, as expected and unchanged from previously
• NZ Aug. M3 Money Supply out at +3.5% y/y vs. +3.8% prior
• JP Sep. Small Business Confidence out at 43.5 vs. 41.8 prior
• GE Aug. Import Price Index out at +1.3% m/m, -10.9% y/y vs. +0.7%/-11.4% expected and -0.9%/-12.6% prior
THEMES TO WATCH – UPCOMING SESSION
(All times GMT)
• Sweden Retail Sales (0730)
• GE Retail PMI (0810)
• EU Euro-zone Retail PMI (0810)
• UK Final Q2 GDP (0830)
• UK Current Account Bal (0830)
• UK Mortgage Approvals (0830)
• UK M4 Money Supply (0830)
• HK Retail Sales (0830)
• EU Business Climate Indicator (0900)
• EU Euro-zone Consumer/Economic/Industry/Services Confidence (0900)
• UK CBI Distributive Trades Survey (1000)
• US S&P/CaseShiller Home Price Index (1300)
• US Fed’s Fisher to speak (1350)
• US Consumer Confidence (1400)
Market Comments:
Dollar bulls that went home happy at the end of the Asian session yesterday were in for a surprise during the night. A strong performance by equity markets in the face of renewed M&A talk and greater optimism about prospects in the financial sector put a brake on the dollar’s gains. At the same time we witnessed Japanese finance minister shifting his comments into reverse gear after appearing to give the green light to JPY bulls earlier in the day.
GBP was also helped by strong corporate demand and UK bank dividend payments while the AUD was the out-performer of the session, rising after a series of more-hawkish comments from RBA Governor Stevens yesterday and cemented after noted RBA-watcher Terry McCrann forecast a series of rate hikes by the RBA in coming months. EUR took a short-term hit after ECB chief Trichet commented that having a strong dollar was “extremely important”.
The Asian session was again dominated by words from Japanese authorities. First off, finance minister Fujii continued his back-pedaling by reiterating that he never said he accepted a strong JPY and warned that currency intervention is possible under extreme circumstances. He cautioned that present currency moves are too sudden and current levels in currency markets were too one-sided. A couple of hours later he was out again saying there is no need for excessive currency market reaction, with current moves within a natural range. What’s coming next?!
There were more pro-dollar comments from former top currency official Toyoo Gyohten (now an advisor to Fin Min Fujii) who was quoted as saying Japan should support the US dollar’s world reserve currency status, as there was no better alternative and keeping it as stable as possible was the best option. Later, strategy minister Naoto Kan came on the wires saying that stable FX rates were desirable, and seemed to have calmed down slightly though the government will be closely monitoring the currency’s impact on the economy.
While on the Japanese economy, today’s data showed the risk of Japan sinking deeper into a deflationary trap was very much alive as core nationwide CPI fell at a steeper pace for the sixth consecutive month. Core inflation fell a hefty 2.4% y/y, bang in line with expectations, but at a faster pace of decline than the 2.2% seen in July. September’s data for the Tokyo area also showed similar tendencies with a decline of 2.1% y/y versus 1.9% the previous month.
Needless to say, activity in JPY-related FX pairs was whippy during the Asian morning, though USDJPY seemed to stabilize around the 90 mark. The hawkish sentiment in AUD interest rate markets was given another boost this morning after the RBA’s Head of Economics, Anthony Richards, warned of a house price bubble. He cautioned that it was not reasonable to expect mortgage rates to stay at the current low levels indefinitely. Meanwhile, Australian Treasurer Swan announced a record, but smaller-than-expected, budget deficit for 2008/09 at 2.3% of GDP. AUD was scraping higher to the 2009 highs reached last week.
On the data front, into Europe we will see final Q2 UK GDP numbers and German, Euro-zone retail PMI together with Euro-zone confidence indicators. The US sees Case Shiller house prices and consumer confidence.