High On Confidence
Data in the US surprised to the upside on Tuesday. The consumer confidence index recorded the highest reading since February, rising to 70.3 in September from 61.3 and beating a consensus estimate of 63.1. Details showed that consumers’ outlook for the labor market also improved. The S&P/ Case Shiller index rose by 0.4% m/m in July, less than market expectations of a 0.8% rise and the July home price index rose by 0.2% m/m against the 0.6% consensus. Our economists note that the S&P/CS index lags price changes, adding that the trend in home prices has been especially strong. In Canada, retail sales bounced back in July, growing by 0.7% m/m against a consensus estimate of 0.2%. Despite the positive data, risk currencies, including CAD and AUD, pared away some of their gains after sentiment turned sour and US equities sold off. USDJPY traded in tight ranges below 78 after Finance Minister Azumi signaled that the MoF will be ready to intervene “if necessary”. Comments from Philadelphia Fed President Plosser noting that QE3 is “not likely to be effective” in the current environment did not help sentiment. Plosser remarked that he opposed the FOMC’s actions on September 13, noting that labor markets are likely to improve “only gradually” and QE3 could risk the Fed’s credibility. In Spain, Catalonia President Artur Mas called for early elections in the region on November 25. Mas earlier demanded greater control on Catalonia’s tax revenues, but was rejected by Spanish Prime Minister Rajoy. This could potentially be a problem for the central government as early elections can be used by the region’s nationalists to forward the case for independence. ECB President Draghi was on wires on Tuesday defending the OMT programme. Draghi earlier met with German Chancellor Merkel where they discussed the October EU summit and banking oversight. No further details were released. Today, Bundesbank President Weidmann is due to speak. Also on tap are the September inflation report in Germany, July employment report in Norway and September consumer confidence data in Sweden.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank