EUR pushes higher
The German ZEW October survey showed somewhat mixed results – the current situation numbers came in at 10.0 from 12.6 (consensus 11.8). Investors paid more attention towards the economic sentiment index which rose to -11.5 from -18.2 however leading to a grind higher in EURUSD. Decreased uncertainty over financial markets was cited as a driver behind the improvement. UK CPI continued to fall in September, the headline CPI print rose just 2.2% y/y (in-line with expectations), with the core numbers unchanged from last month. The move lower was driven by falling growth rates in utility prices. The October RBA minutes offered little in the way of surprise – policy was judged appropriate to be ‘a little more accommodative to support demand’, while there was an increased likelihood that growth would be weaker in the forecast year. On commodity prices, the minutes noted that it was too early to see the full effects of lower prices while mining investment may not be as strong as forecast. AUD initially fell 20-pips on the release as a function of further easing expectations, though the currency was then swept higher as equities rallied, driven largely by financials. NZD was the main underperformer overnight, CPI rose by just 0.8% YoY – the lowest level since 1999. Kiwi has benefitted from a relatively constructive central bank stance in recent months, but with CPI in structural decline, the market may start to price in further monetary easing. This should start to weigh on the currency, especially if it is seen to be driving part of the low inflation itself. Yesterday’s US data was largely constructive – US retail sales rose by 1.1% m/m in September beating market expectations of a 0.8% rise. Our economists note that the unexpected increase in retail sales “control group” (ex auto, gas, building material) by 0.9% m/m puts upside risk to our Q3 GDP forecast. NY Fed (Empire State) manufacturing survey rose to -6.2 from -10.4 (consensus: -4.0) but the details including new orders and employment remained weak. The impact on USDJPY was fairly muted following the data announcements. FOMC members Bullard, Lacker and Dudley were on wires on Monday. Lacker noted that Q2 weakness in employment was “transitory” and added that the recent job growth has been closer to average during recovery. Bullard estimated the economy to grow by 3.5% in 2013, pushing the unemployment rate down to 7%. Yesterday, BoC Governor Carney noted that capital flows into the country have been pushing up CAD and also having a supportive effect on domestic growth by keeping longterm interest rates down. The international securities transactions report for August is due ahead today.
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