– The INR and AUD lead modest rally vs USD, Asian equities up 0.5-3.0%
– German industrial output likely to fall in August
– A weak US non-farm payroll is likely to renew growth concerns
What to watch for today
EUR: Production update. German August industrial production is expected to give back much of July’s unexpected strong 4% gains. We expect a 3%mom decline, below the -2% consensus forecast. The drop in orders in August reinforces the scope for a weak reading today, in our view. The ECB passed on a chance to signal support for growth at yesterday’s meetings and this will likely increase the vulnerability of euro growth proxy currencies to weak data. We think the SEK and HUF are particularly vulnerable to a soft reading.
USD: Weak payroll. Our economists expect a 35k gain in September total payrolls, below the consensus forecast of 55k. Private payrolls likely rose 75k, which would be softer than the ADP print of 91k. Data in line with our forecast would be consistent with a freeze in hiring rather than a cutting of jobs. But a weak payroll print would still renew fears of recession, particularly if hours worked also shrank for a second consecutive month, in our view.
CAD: Rebound in jobs. We forecast Canada employment rose 10k rise in September after the 5.5k drop in August. Butthis would still see employment growth running lower on a three-month basis and leave the CAD vulnerable to renewed downside if the US jobs report comes in weak, in our view.
TWD: Sluggish exports. Exports growth likely rebounded to 10%yoy in September but fell on a sequential month-on-month basis. With inflation subdued and Taiwan highly exposed to weaker global growth, we think the central bank’s FX policy is biased towards currency weakness.
What happened overnight
FX markets in ranges, Asian equities rally. EURUSD is down slightly to 1.343 while USDJPY is flat a 76.6. AUDUSD is outperforming amongst the majors and rose to 0.979 despite an IMF report that slowing commodity demand increased the downside risk to Australia’s growth outlook. The INR is leading a modest Asian currency rally vs the USD. Asian equities are up 0.5-3.0% following the rally in US equities overnight. The MAS has announced that its semi-annual policy statement will be released on 14 October. We recommended recently going long the SGD ahead of the MAS meeting.
MYR: Sluggish exports. Malaysia exports rose 10.9%yoy in August, much higher than the consensus forecast of 7.9%yoy. But sequentially, exports are still down 1.3%mom. Imports surprised weaker which drove an increase in the trade surplus to MYR10.9bn. With inflation likely to moderate, we think Bank Negara will be increasingly resistant to rapid MYR appreciation.
What to read today
– European Economics and Strategy: ECB: Good-bye Mr Trichet. After eight years Trichet chaired his last monetary policy meeting, delivering in full what the ECB under him had adhered to throughout the crisis, the separation principle. The latter differentiates between the monetary policy stance and the transmission mechanism of that stance. From an FX perspective, the main message from the ECB policy decision is that the market should not look to the ECB to support global growth expectations.
– UK Economics and Strategy: Bank of England: Easy does it. The Bank of England MPC eased policy more than we expected today, increasing its asset purchase programme by a further £75bn (to a new total of £275bn). The MPC argued that the financial and economic stresses from the euro area sovereign debt crisis, as well as domestic headwinds – fiscal tightening and weak real household incomes – were reasons for the loosening.
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http://www.easyforexnews.net/wp-content/uploads/2011/10/document-918071241.pdf
Credit Suisse
FIXED INCOME RESEARCH & ANALYTICS