Euro Marches On
The euro pushed through 1.25 on Tuesday on limited news and data flow, though a series of upcoming meetings between Eurozone policymakers (starting with Rajoy and Von Rompuy) has left investors unwilling to be caught short in case of any major policy developments. On the data front, ECB data showed Spanish bank deposits down 4.7% m/m in July. The underlying driver of this deposit flight is of course not expressed in the data but further signs of capital flight, be that through domestic savers or large multinational corporates is worrying in any case. M3 growth in the Eurozone also jumped to 3.8% y/y growth in July up from 3.2% in June. This brings the 3m average to 3.4% y/y, the highest growth rate since May 2009. Reuters reported that while ECB President Draghi will not be part of the Jackson Hole conference due to heavy work pressure, Bundesbank President Weidmann still intends to attend however. Falling commodity prices were a key talking point during the Asia session. The New Zealand dollar fell on news that dairy-farmer incomes next season would likely be lower than had been previously indicated. What’s more, a strong currency was blamed as the main reason for this. Meanwhile Australian Treasurer Swan acknowledged that the spot price of iron ore (Australia’s main export) had fallen more quickly than expected, but he insisted that this would not derail government plans to return to a fiscal surplus in the current fiscal year. The comments served as a timely reminder of why the Australian dollar exhibits both safehaven and risk-currency characteristics: a virtually pristine fiscal position ensures the former, while commodity-price exposure provides the latter. Chicago Fed President Charles Evans (non-voter) called again for “open ended bond purchases” to boost the economy. Cleveland Fed President Pianalto (voter) said the economic recovery remains “frustratingly slow” and that “large-scale asset purchases can be effective”.
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UBS Investment Bank