Both dollar and yen both maintained yesterday's gains in Asia today, as investors’ risk aversion persists. This cautious sentiment increased after Germany tempered any optimism about this week's EU summit, and we’ve seen the risk selloff continue after disappointing data out of China. Asian equities are broadly lower, with the Nikkei down 1.46%, the Hong Kong HSI down over 3%, both hard on the heels of a 2.13% fall in the Dow Jones. Crude oil and gold are markedly off from yesterday's high of 88.18 and 1696.8 respectively. The dollar index is holding firm above the 77 level so far, staying above yesterday's low of 76.44. The main focus today will be on a level of 77.43 in the dollar index, 1.3685 in EUR/USD, 1.0272 in USD/CAD and 1.0101 in AUD/USD – all of which will give visibility as to whether the dollar is regaining strength.
China's GDP grew by 9.1% in the third quarter of 2011, which marked the third consecutive quarter of growth moderation, and was the weakest number yoy for Q3 in two years. The government's tightening policy and the continuing global economic turmoil were key factors contributing to this slowdown. There are forecasts that China's growth could slow further to 7.7% in Q1 of 2012, on expectations of a sharp deceleration in foreign demand. As indicated in the press release, the Chinese government pledged to focus on 'prosperity, relevance and flexibility', indicating that their policy of tightening may be over. However, I’d be surprised if the government began easing policy any time soon, as inflation remains at elevated levels. Clients should expect interest rates to stay where they are for some time.
The euro's rebound reversed yesterday after Germany’s Finance Minister Schaeuble poured cold water on expectations for this week's EU summit on October 23. Schaeuble said that no "definitive solution" to the region's debt crisis would emerge from the summit. In addition, Moody's warned that it may slap a negative outlook on Friday's AAA rating as "deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook".
In the US, Fed officials expressed a very different view on boosting the economy overnight. The Chicago Fed’s spokesman Evans said that there could be "massive shortfalls" in output and jobs growth, and reiterated his proposal that interest rates should be kept at their current historical low (i.e. nearly zero) until employment drops below 7%, or the medium term inflation outlook breaks through 3%. He also expressed his support for more quantitative easing. Richmond Fed’s Lacker, on the other hand, said that the current growth-restraining factors are "non-monetary". These "non-monetary disturbances" could not be offset by monetary stimulus and would result in higher inflation. Lacker also opined that it is "inappropriate" to reinvest maturing mortgage-backed securities.
In Australia, the Reserve Bank’s minutes noted that the "pace of near-term growth was unlikely to be as strong as earlier expected" reflecting "financial turmoil and associated effects on business confidence." "Pick-up in underlying inflation had been more gradual than initially indicated" and medium term inflation outlook is now "more consistent with the 2–3 per cent target". It also stated that as the improved inflation outlook is confirmed by incoming data, this "would increase the scope for monetary policy to provide some support to demand, should that prove necessary". This is being seen by the markets as an indication of a possible rate cut ahead; whether this happens in Q4 of 2011 will likely depend on the Q3 inflation data to be released next week.
Looking ahead, the UK CPI figures will be a main feature in today’s European session: these are expected to jump to 4.9% yoy in September. Germany’s ZEW economic sentiment index is expected to deteriorate to -45 in October. US PPI is expected to moderate slightly to 6.4% yoy, with core PPI down to 2.3% yoy in September. The TIC capital flow data is expected to rise to 27.5bn in August while the NAHB housing market index is expected to recover to 15 in October.
Plenty of economic indicators due out today
GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
0:30 | AUD | RBA Minutes | ||||
2:00 | CNY | Real GDP Q/Y Q3 | 9.10% | 9.20% | 9.50% | |
8:30 | GBP | CPI M/M Sep | 0.40% | 0.60% | ||
8:30 | GBP | CPI Y/Y Sep | 4.90% | 4.50% | ||
8:30 | GBP | Core CPI Y/Y Sep | 3.20% | 3.10% | ||
8:30 | GBP | RPI M/M Sep | 0.50% | 0.60% | ||
8:30 | GBP | RPI Y/Y Sep | 5.40% | 5.20% | ||
9:00 | EUR | German ZEW (Economic Sentiment) Oct | -45 | -43.3 | ||
9:00 | EUR | German ZEW (Current Situation) Oct | 40 | 43.6 | ||
9:00 | EUR | Eurozone ZEW (Economic Sentiment) Oct | -45.1 | -44.6 | ||
12:30 | USD | PPI M/M Sep | 0.30% | 0.00% | ||
12:30 | USD | PPI Y/Y Sep | 6.40% | 6.50% | ||
12:30 | USD | PPI Core M/M Sep | 0.10% | 0.10% | ||
12:30 | USD | PPI Core Y/Y Sep | 2.30% | 2.50% | ||
13:00 | USD | Net Long-term TIC Flows Aug | 27.8B | 9.5B | ||
14:00 | USD | NAHB Housing Market Index Oct | 15 | 14 |
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