DAILY MARKET COMMENTARY
2 September 2011 – 8:00 GMT
Friday
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Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
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FUNDAMENTAL ANALYSIS at 0800 GMT
USD
Price action was subdued in Asia overnight, with market focus centered on today's US payrolls release. The S&P 500 closed down 1.2% despite a stronger ISM number yesterday and softer risk appetite worked its way into the Asian session. Yesterday's August ISM number came in well ahead of expectations. Not only did it force some market participants to reassess their expectations for further Fed monetary easing, it also contrasted sharply with a batch of weak European PMIs released earlier in the day. The dollar got a significant boost for both reasons. However, the upswing was brief against most currencies, although the dollar held onto the gains it made against the euro. The Swiss franc continued to advance, driven by risk-off flows on the disappointing Eurozone PMI numbers, and also due to silence from the SNB regarding its policy intentions. Fed Governor Duke said that the US housing market is "so severely out of balance" that it is hampering the economic recovery. Our US economists are slightly above consensus for today's non-farm payrolls print, looking for a headline number of +80k and an unemployment rate of 9.1%. EURUSD traded 1.4229-1.4242 and USDJPY 76.79-76.97.
EUR
Reuters, citing an unnamed source close to the inspection team, reported that EU/IMF inspectors have serious doubts about whether Greece can meet its targets for the privatisation of state assets, but that it is much too soon to say if September's quarterly instalment of aid is at risk. Dow Jones, citing an official, reported that the Troika has suspended the Greece inspection and is set to resume in ten days.
ECB Governing Council member Nowotny said he doesn't share any concerns about France losing her triple-A rating.
German Chancellor Merkel repeated her opposition to Eurobonds, describing them again as the 'wrong answer'. Interestingly, Portugal's Prime Minister Coelho also said Eurobonds are not the solution, given the deeper political union that would first be required for their introduction.
Eurozone PMIs disappointed. Flash estimates in Germany and France were both revised down to 50.9 and 49.1 respectively while the Italian estimate for August was below consensus at 47.0. As expected, composite European PMI was revised down to 49 from 49.7 preliminary. These prints (particularly the ones below 50) are concerning and pushed markets into risk-off mode.
Irish Finance Minister Noonan said that it looks as if Ireland will have to revise down projected growth figures for 2012. He added that he understands that the Finland-Greece collateral deal is now off the table.
Bundesbank President Weidmann said that the policy response to the Eurozone crisis has strained its framework and blurred the line between fiscal and monetary policy. He said that in the long term this blurring puts a strain on the confidence in central banks. He believes some Eurozone states taking on risk for the whole bloc is not the way to curtail uncertainty, as this only puts more pressure on monetary policy to be loose.
JPY
New Japanese Prime Minister Noda has appointed Jun Azumi as finance minister. Not much is known about him yet, but Noda is likely to maintain some influence over policy.
AUD
Prime Minister Gillard said she has not been approached about stepping down, despite some speculation. She said she is determined to keep doing what she has been doing as PM and is not considering replacing the immigration minister
Retail sales rose by 0.5% m/m in July; a strong print after months of weakness. Q2 capex was also robust at +4.9%, in line with UBS, above consensus.
A. White
Analyst at Fibosignals.com
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