Europe’s Finance Ministers appear to have achieved no more than the G7 leaders did a week earlier. E-bonds will continue to be pushed by some, wanted by others, resited by Germany. Suggestions to allow leveraging the EFSF to give it ore power have also been rebuffed.
For now, Europe wants more austerity from Greece and intends to agree the next tranche of bailout funds in early October. That, of course, does absolutely nothing to calm fears that Greece could default any time and the PM’s decision to cancel a trip to the US has led to the usual round of rumours. As far as the euro is concerned, the positive effects of easing dollar funding strains have been all but wiped out and EUR/USD 1.35 is in the market’s sights. We remain short of EUR/GBP which is a variant on the same theme.
Today’s economic calendar is thin, to say the least, on both sides of the Atlantic. The UK saw Rightmove house price data early this morning, + 0.7% in Sep, +1.5% y/y. If true, welcome news but certainly not enough to have any market impact. Eurozone construction output and the US NAHB housing market index don’t often set markets alight either. Wednesday’s UK MPC Minutes, the FOMC meeting on the same day and flash Eurozone PMIs on Thursday are going to be much more of a focus for markets which still fear that economic momentum is being lost and recession is perilously close.
The Asian session saw a very sharp fall by a number of currencies, with SGD weakness standing out. That’s a reflection of fear of economic slowdown and a realisation that after strong gains, there is room for some (like Singapore) to allow their currencies to soften and support exports. But at a wider level, this is contagion of the European crisis to the strongest part of the global economy. The Korean won is the bellwether for Asian FX, and is 6% weaker than it was at the end of August. In G10, AUD and NZD remain vulnerable. In Europe, EMFX contagion will be reflected in on-going CEE currency softness.
Positioning data tell us not that surprisingly that speculators are now net long the US dollar for the first time since June 2010. That was when the dollar started to fall so this is a reasonable conter-indicator, but this doesn’t feel like the end of this move.
Societe Generale
Research & Analytics