DAILY MARKET COMMENTARY
2 November 2011 – 8:00 GMT
Wednesday
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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
The focus remains squarely on Greece, leaving risk assets at the mercy of headlines. The Greek press reported that Prime Minister Papandreou refused to back down on his plans at an emergency cabinet meeting Tuesday evening, and still intends to hold a confidence vote in the government Friday. Similarly, a referendum on the proposed second rescue of Greece is still on the cards - although we note that this is not likely to happen until December at the earliest. Several government party members expressed strong reservations about the referendum throughout Tuesday, and this had a detrimental effect on investor confidence. One even resigned, reducing the government's majority to 152/300.
However, we note that those who oppose the referendum could still express their confidence in the government at Friday's vote, saving their dissent for the day when the question of a referendum is eventually put to the vote. Papandreou's government last faced a confidence motion on June 21, and all PASOK party members voted in favour, and it was only when austerity measures were voted on a week later that dissent emerged. Also, one opposition parliamentarian today said he may vote confidence in the government on Friday to prevent the political crisis that might ensue should the government fall. EURUSD traded in a range of 1.3609-1.3871 and USDJPY traded 77.95-78.99. On Wednesday, G20 leaders are due to begin arriving in France for the summit on Nov. 3-4. We would not be surprised to see some speculation on the newswires about what the final communique will contain, which may provide a temporary boost to sentiment. Fed Chairman Bernanke is also due to host his third post-FOMC press conference,. No policy changes are expected, but investors will be listening for any shift on his stance on QE3.
EUR
Apart from Greece, the series of European PMIs added to the broad risk-off tone. Sweden was above consensus at 49.8 but still signalling contraction. Norway was significantly below expectations at 50.8 and earlier prints were also revised down. Swiss PMI was out at 46.9 vs 47.7 consensus. The sources of the weaknesses in general are region specific but the overall trend remains downward, particularly in the forward looking components.
The spread between Italian and German 10y government bond yields hit a euro-lifetime high.
The Finnish Minister of European Affairs, Alexander Stubb, warned on the Greek referendum that "the situation is so tight that basically it would be a vote over their euro membership" and that "no Greek bailout package will be deployed if Greece does not carry out reforms".
JPY
Unofficial estimates place the size of intervention at JPY 10 trn, over $130bn. However, BoJ money market data suggests Monday's intervention totalled about JPY 7.7 trn. Either way, the number surpasses the previous record from August 4.
AUD
The RBA cut rates by 25bp as expected. The RBA cited slowing Chinese growth, weaker commodity prices, volatile external and financial conditions and a high AUD as reasons to ease.
Our analysts note that another cut in December is not a done deal, especially with some recent improvement in the global data flow and the Eurozone agreements, though much of this remains volatile. They continue to expect a 25bp cut in Q1 next year and this should be the last move.
GBP
The manufacturing PMI for October came in at 47.4, lower than expectations for a reading of 50.0, the lowest in 2 years. The forward-looking new orders balance fell to 44.1 from 50.3, the lowest since March 2009.
UK Nationwide house price rose to 0.4% m/m vs market expectations of 0.0% Our UK economist notes that as monthly data is volatile, it's perhaps better to look at the underlying 3m/3m rate, which stands at -0.2%. Housing prices have been stable for the past few months, but looking ahead, prices should drop as the economy stalls and employment creeps lower.
A. White
Analyst at Fibosignals.com
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