(All times GMT)
- US Sep. ISM Manufacturing (1400)
- US Aug. Construction Spending (1400)
- US Aug. Pending Home Sales (1400)
- US Fed's Lockhart to Speak (2130)
- US Fed's Pianalto to Speak (2130)
- Japan Aug. Jobless Rate (2330)
- Japan Aug. Household Spending (2330)
Market Comments:
The ECB upset the apple cart today as the ECB's Trichet said that Euro finance ministers and central bank representatives discussed currency issues at a G-7 meeting today. Mr. Trichet said little that was new, repeating past statements that a strong USD is "extremely important", but clearly, the strong EUR - no doubt particularly against China and the other USD peggers - is rankling the central bank and finance ministers as it serves as a strong brake on the economic recovery for the bloc of nations. The EU's Almunia also stated that the G-7 would discuss Euro strength. Now the question moves to what the Euro can do about its situation, and the answers are few. The fault lies with the USD peggers and the current move by investors to fund risk in dollars (the USD carry trade). A new communique with more pointed language on currencies would be one option, a move that would suggest that negotiations are moving to the next level eventually - but a Reuters story quotes two G-7 sources saying that no communique will be issued in light of the move to make the G-20 forum the chief one for discussing economic issues. So a loud complaint and firm promise to bring the issue up in the future is perhaps all we can expect.
Back to the Risk Appetite Salt Mines
So barring further G-7 developments, we're back to tracking risk appetite, which is relatively supportive of the USD at the snapshot in time ahead of the US open. Several EM currencies, like the CEE currencies and the ZAR have corrected sharply lower today, suggesting some currency traders would like to take risk off the table - perhaps ahead of US employment numbers on Friday. AUD has been surprisingly resilient to the latest consolidation in risk appetite and one wonders at the ability to march to new highs overnight even as most equity indices remain below the recent top. AUDUSD retreated on the ECB/EU comments on the USD, but needs a close strongly below 0.8750 today or tomorrow to get any traction on a negative view for the immediate future, however.
Asian and European News Tidbits
The Q3 Tankan survey was in-line with expectations, showing a strong improvement from the previous quarter, though many pointed out that companies' plans for capital expenditures were disappointing. In other Japanese news, a rare strong month-on-month rise in Retail Sales was also in the offing, with year-over-year comparisons at a better than expected -1.8% for August. Norway's Unemployment rate fell to 2.7%, far better than expected. The rise in unemployment there has been extremely mild compared to elsewhere, rising from a 1.5% trough in mid-2008 and compared to the peak close to 4.5% in 2003-04. Also supportive of NOK was the announcement by Cisco Systems that it will buy a Norwegian company for $3 billion.
US ISM and other data
The US ISM report is on tap today after yesterday's shockingly weak Chicago PMI report, the final of the three major regional manufacturing surveys. At 46, the report suggest manufacturing in the Chicago area is in recession. Components of the survey of interest included Order Backlogs, which dropped from 45.8 to 36.7, and New Orders, which dropped to 46.3 from 52.5. Employment was at an anemic 38.8 vs. 38.7 in Aug. though this was still the best reading of the year. The Chicago data is surprising relative to the sharply improved Empire and Philly Fed numbers. So the ISM may be a bit of a market mover today, even if the non-manufacturing survey for release Monday is far more important for measuring the health of the dominant service sector, which has yet to post a reading of 50.
The worry in the manufacturing sector is likely that we have seen a recovery based on the inventory cycle: companies panicked and cinched off production rapidly late last year and early this year until they felt it was safe to resume operation at more normal levels. The supply response was even more dramatic than the demand erosion, apparently, and that could mean we are simply seeing a few months of strength on rebuilding of inventories. Personal Income and jobless claims data today indicate that the demand for any expansion in manufacturing will have to come from beyond the US borders. Meanwhile, the bigger focus is tomorrow's US payrolls data. With fixed income lined up exactly at major support both in the US and in German benchmarks, it feels like something rather big might happen tomorrow - an either/or kind of day.
Chart: EURJPY
Bunds are up trading against recent highs (and 10-year yields are right at the 3.2% support level) and the powers that be in Europe are trying to talk down their currency. Tomorrow's US payrolls numbers are likely to tell us whether the JPY can keep up a head of steam to the upside vs. the Euro. The important 200-day moving average looms to the downside. 132.00 is the upside resistance of note.
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