JPY Gains
Risk appetite suffered during the New York session, with safe-haven currencies like USD and JPY gaining across the board. Eurozone PMI numbers for September were not inspiring with the composite PMI printing slightly softer than expectations at 45.9. Manufacturing and services PMIs is Germany came in stronger than expected at 47.3 and 50.6 while the French PMIs trailed consensus at 42.6 and 46.1 respectively. Spanish yields rose marginally by 8bp even as Spain successfully auctioned EUR4.799 bn bonds against the target range of EUR3.5-4.5 bn. EURUSD struggled below 1.30 for most part of the New York session before finding some support from a Financial Times report which noted that EU officials are working with the Spanish government behind the scenes for a new rescue programme for Spain. Details are vague but it appears that the Spanish government will submit a structural reform plan to the EU by next Thursday, hoping that the EU’s “pre-approval” will help it avoid taking tougher austerity measures when it requests for EU aid. Considering that the ECB requires “strict conditionality” for its OMT programme, any leeway that Spain gets out of these negotiations can be EUR positive. Elsewhere, Norges Bank Governor Olsen gave a speech outlining the current state of the domestic economy and monetary policy implications. He mentioned the growing imbalances in the domestic economy, the problems with currency strength and noted that there is room to move rates in both directions. He remarked that the central bank could intervene if NOK deviates too much from fundamentals but added “this is not a good long-term tool”. In the US, more Fed speakers were on wires on Thursday – Rosengren expected QE3 to cut unemployment rate by “couple of tenths”; Lockhart noted that job growth of 150k per month is needed to cut unemployment and that risk associated with QE3 are “manageable”; Kocherlakota, one of the more hawkish members of the FOMC, commented that he would want rates at 0% until unemployment rate falls to 5.5%. The increased focus on employment will make USD more sensitive to payroll numbers in the coming months. Meanwhile, initial jobless claims last week came in at 382k above the 375k consensus taking the four-week average to 378k, highest since June 30.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank