– Asian FX and equities rally, AUD outperforming amongst G10
– Slovenia likely to ratify EFSF amendments
– US Consumer confidence and Richmond Fed in focus
What to watch for today
EUR: Policy focus. The EFSF amendments proposed on 21 July will undergo parliamentary ratification in Slovenia today. We expect the parliament to approve the measure, even after the center-left government lost parliamentary support last week. Greek Prime Minister Papandreou will meet with German Chancellor Merkel today. We expect any headlines from the meeting to adhere to recent statements of support for the 21 July agreements. Today’s Slovenian vote will be followed by similar ratification votes in Finland (28 September) and in Germany (29 September).
USD: Consumer confidence and Richmond Fed survey. Markets will monitor the Richmond Fed manufacturing survey for guidance on the next ISM data point. The consensus forecast is that the Dallas Fed manufacturing index fell further to -11 in September from -10 in August while the Consumer Confidence index likely rebounded to 46 in September from 44.5 in August.
What happened overnight
Asian equities rallied, the EUR held on to gains. EURUSD is holding above 1.35 while Asian equities are up 0.3% (Shanghai) to 1.8% (Nikkei). Despite this, USDJPY is lower to 76.3 after initially rallying on the back of reports that the Japanese government may start implementing from today measures announced last week to curb yen strength. The AUD is outperforming amongst the Majors and traded to a high of 0.988. MYR is leading Asian currencies’ rally vs the USD, with USDMYR falling to 3.1555.
Expectations of more positive policy action from Europe have helped to stabilize sentiment. News agencies reported that the ECB may discuss rate cuts, new 12-month LTROs, and restarting purchases of covered bonds at next week’s meeting (6 October). We note that the EUR rates market is currently pricing in about 30bp of ECB rate cuts at next week’s meeting after adjusting for liquidity in the system.
In addition, CNBC reported that European officials are discussing plans to leverage up the EFSF through a special purpose vehicle (SPV). The SPV would issue bonds and the proceeds would be used to purchase peripheral European, Spanish and Italian debt, as opposed to the EFSF borrowing directly from the ECB. There has been no official confirmation of the story, but the extensiveness of the report suggests to us that such policy action may be forthcoming, probably over the next few weeks.
We think the ECB easing will help to stabilize euro area credit and risk sentiment in general. However, the impact on the EUR is mixed as monetary easing should eventually hurt the EUR even as it lowers credit risk.
PHP: Trade deficit re-widened further. The trade deficit rose to USD750mn in July from USD376mn in June and pushed the 12-month rolling deficit to $6.7bn (3% of GDP). With the export and manufacturing sector sluggish, BSP monetary policy has turned neutral and FX policy increasingly cautious.
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/09/document-804491740.pdf
Credit Suisse
FIXED INCOME RESEARCH & ANALYTICS