- Markets lose confidence in global recovery
- FOMC up, but no magic bullets
- China data key for Asia session, AUD in particular
- SEK still looks exposed in Europe.
The history books will record that the biggest one-day fall in global stocks markets since that seen in the wake of Lehman’s collapse was a direct result of S&P stripping the United States of its AAA rating on Friday night. If US policy makers could get over their obsession with laying into the ratings agency and go outside to smell the (wilting) roses, they might, like the rest of the market, have better appreciated the take on Monday’s markets of Brazilian Finance Minister Guido Mantega, that ‘markets have lost confidence in global economic recovery’. Enough said.
With a question market still over whether the evident sharp slowdown in the U.S. and Eurozone economies is fully translating to Emerging Markets or whether decoupling remains a relevant concept (Korean stock market investors evidently believe the answer is a resounding ‘no’) Tuesday’s batch of China data is going to be important. If the industrial production, retail sales and FAI data shows that China is not yet slowing in line with the recent softening in PMI surveys, commodity prices and commodity currencies – AUD in particular – might enjoy at least a temporary reprieve. In this case we would favour AUSDSEK for a bounce (SEK longs having refused to believe the signal coming from Swedish stock markets for several months now). Disappointing data and the talk will be of AUDUSD slicing back through parity sooner rather than later. We would also favour EURSEK and USDSEK higher under this latter scenario.
Tuesday FOMC meting now looms large, and while there is plenty of uncertainly (and scope for disappointment) over the form of words the Fed will choose, many are already thinking (and again Brazil’s Mantega is saying) that there may need to be a G20 monetary policy response to the tightening of fiscal policy across the U.S. and much of Europe and which is greatly compounding global growth concerns. Here, the currencies of those countries seen to have the most monetary policy bullets (notably Australia in G10) might continue to suffer more in the short term but should then enjoy gains based on confidence that policy levers may actually be effective, unlike in the U.S. in particular and perhaps too the Eurozone (where interest rate policy easing in any event looks least unlikely while inflation is where it is) and the U.K..
The bind the Swiss authorities find themselves in looks unlikely to be resolved anytime soon. The reports of ’emergency’ meetings to discuss CHF strength passed without incident. As Chart 1 shows, confidence that anything Switzerland does in isolation of G20 counterparts will succeed in arresting CHF strength, rightly runs low.
Ditto MoF/BoJ and USDJPY. After the weekend G7 statement added to the sense of displeasure at Japan’s unilateral actions, we have little USDJPY is at risk of continuing to seep lower until such time as some form of co-ordinated policy response looks warranted. Y77.14 was last Thursday’s intervention entry point, and if this goes unopposed, the August 1 low of Y76.30 may not be too far behind.
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/08/FXASDaily_AttrillR_08_08_11_19_01_24.pdf
BNP Paribas
Corporate & Investment Banking