DAILY MARKET COMMENTARY
8 September 2011 – 8:00 GMT
Thursday
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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
Risk sentiment was unstable in Asia, mainly on the back of weaker Australian labour data and uncertainty ahead of today's central bank meetings and speeches by President Obama and Fed Chairman Bernanke. Against market expectations, employment in Australia dropped in August, driving the unemployment rate to 5.3%. At the time of writing the Nikkei was broadly flat and the Hand Seng Index was trading lower by 1.0%. EURUSD traded 1.4050-1.4098 and USDJPY 77.22-77.42.
Overnight, two Fed speakers took to the podium ahead of Bernanke's own appearance later on Thursday. Chicago Fed President Evans, a well-known dove, repeated his view that the Fed should 'seriously consider' additional easing for now. San Francisco Fed President Williams noted that the economy in the first half of the year was dangerously close to stall speed. He also said the outlook for the next 12 months had grown darker. Main focus today will be on the ECB press conference. Weaker business activity and inflation expectations in combination with increased downside risks to growth would make a case for a more neutral assessment of inflation risk. In the US the focus will be on President Obama providing details about his plan to support the labour market. Fed Chairman Bernanke will speak about the US economic outlook. We do not expect Bernanke to provide more details about policy options for stimulating growth ahead of the FOMC meeting in September although he may sound more cautious.
EUR
The German Constitutional Court rejected lawsuits aimed at blocking German participation in Eurozone bailouts. However, the decision came with additional requirements. The Court said the government must get approval of parliamentary budget committee before granting any aid, and parliament must have a say in decisions that lead to burdens for German budget.
Angela Merkel said solving the euro crisis will be a long, hard path, which cannot be solved with radical steps like restructuring or Eurobonds.
Main focus today will be on the ECB press conference. Weaker business activity and inflation expectations in combination with increased downside risks to growth would make a case for a more neutral assessment of inflation risk.
GBP
UK July industrial output came in at -0.2% m/m, vs 0.2% and -0.7% y/y vs -0.4% expected. Our UK economist notes that the monthly manufacturing and industrial production data tends to be volatile, but today's data, combined with lead indicators such as the PMI suggest that the slowdown is likely to endure for some time.
CHF
President Calmy-Rey resigned. However, this is to be expected and should have no impact on markets as the presidency revolves on a yearly basis among the seven governing council (Calmy-Rey was the Minister for External Affairs).
CAD
The Bank of Canada kept the policy rate unchanged at 1.0% as widely expected. However the bank watered down its hawkish bias, noting that "the need to withdraw monetary policy stimulus has diminished". Slowing global economic growth momentum was cited by way of justification.
AUD
According to today's job report the Australian economy shed 9700 jobs in August. The unemployment rate rose to 5.3%, the highest level in 10 months.
This will ease concerns about domestically driven price risk and supports the RBA in taking a more neutral monetary policy stance for now. Given weakening external demand and hence rising downside risks to growth latest development may, however, become a trend over the coming months. A further rise in unemployment above 5.5% would once again put rates around current levels in question. We keep a cautious stance on the AUD, especially versus USD and JPY.
A. White
Analyst at Fibosignals.com
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