NOK wins, CAD loses
US markets were back on line today, and while conditions were predictably thinner than usual, the S&P 500 managed to close a tad higher on the day despite concerns about month-end profit-taking and the damage caused by Hurricane Sandy. Today’s US data releases (Q3 ECI up 0.4%; October Chicago PMI up to 49.9) slightly undercut market expectations, but had no material FX impact. The Fed’s Senior Loan Officer Survey – which revealed better demand for commercial real estate loans, residential mortgages and auto loans alongside easier lending standards – also failed to stir the markets. EURUSD struggled for direction as the Eurozone finance ministers’ teleconference did not reveal any breakthroughs on Greece, though press reports suggest various concessions are being discussed. NOK was one of the better performers, underpinned by better than expected domestic credit growth/retail sales prints for September, and more significantly, the Norges Bank’s unexpected decision to not purchase foreign exchange for the Government Pension Fund Global (GPFG) in November. Norges Bank left its policy rate unchanged as expected at 1.50%, as there is clearly no desire to do anything that would push NOK higher at this stage. Yet, NOK bulls were emboldened by Governor Olsen’s assertion that “given the forecast, we see the next rate hike between March and August of next year”. CAD was undermined by the 0.1% m/m drop in August GDP, reflecting broad-based declines across manufacturing, mining, retail trade, and utilities. This was the first setback since February, a disappointing result in the face of the consensus call for a 0.2% m/m increase – enough to push USDCAD over parity at one stage. The focus ahead is now on China’s manufacturing PMI for October. UBS and the consensus expect a rebound above 50, which should keep risk underpinned over the near term.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank