Eurogroup Meets
USDJPY gained following a better than expected US jobs report on Friday which showed unemployment drop to 7.8% in September from 8.1% in August (consensus: 8.2%) and participation rate rise marginally to 63.6% . Non-farm payrolls rose by 114k in September (consensus: 115k), August payrolls were revised up to 142k from 96k and the July number was revised up to 181k from 141k. Our economists have raised the Q3 real GDP forecast to 2.0% from 1.5% based on improvements in ISM data, inventories and exports but note that Q4 will be slower than Q3. Indeed, New York Fed President Dudley said on Friday that recovery in the US “has been disappointing” and the unemployment rate is still “unacceptably high” – pointing to the risks of further easing by the Fed in December when the Twist programme ends. With all major central banks in an easing mode and with the US showing better signs of recovery, we continue to be bullish on USD and stick with our 3m EURUSD target at 1.25. Ahead today, finance ministers of the 17 member states in the Eurozone meet in Luxembourg. Topics under discussion would include Greece, a potential Spanish bailout and the single supervisory mechanism. With ECB President Draghi noting last week that the OMT programme is “ready” and now it is up to the governments to act on it, the pressure is clearly on the Spanish government. But with the Spanish bond markets still benign (10y yields at about 5.65% on Friday), we note that Spain may choose to continue the wait-and-see approach to the detriment of EUR in the near-term. Markets attention will remain on the developments in the Eurozone with German Chancellor Merkel meeting Greek prime Minister Samaras in Athens on October 9 and Spanish Prime Minister Rajoy meeting French President Hollande on October 10. Also on tap today is RBA Governor Stevens’ testimony to parliament. Though the focus will be on issues outside monetary policy (relating to the allegations of corruption in currency printing), Stevens’ comments on the economy will be closely scrutinized.
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