SaxoBank Market Review

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EUR finds it hard going as stress tests, weak data pressure

MARKET RECAP Sep. 08 2010:

By Saxo Bank

More jawboning from Japanese officials as USDJPY attacks 15-year lows

THEMES TO WATCH – UPCOMING SESSION

GE Trade Data (0600)

UK Halifax House Prices (0700)

Sweden Final Q2 GDP (0730)

UK Industrial/Manufacturing Production (0830)

GE Industrial Production (1000)

US Weekly MBA Mortgage Applications (1100)

CA Building Permits (1230)

CA BOC Rate Announcement (1300)

CA Ivey PMI (1400)

Market Comments:

Europe was the market’s major focus overnight as last week’s positive jobs data faded into the distance and risk aversion was back in vogue. European sovereign debt concerns reemerged as debt spreads widened following a WSJ article claiming that the European bank stress tests had under estimated the exposure to sovereign debt, while a poor number for German factory orders (for a change!) was the final straw that sent the EUR tumbling lower.

There were no data releases of note from the US so Wall St took its cue from concerns in the European financial sector and retraced some of last week’s impressive gains. The only data release was the weekly US ABC consumer confidence reading which improved (?) 2 ticks to -43 but has now still failed to regain sub -40 levels since late-April 2008.

Today’s Asian session featured a slew of Japanese data early-on but these had little impact on currency ranges on the day. USDJPY continues to shy away from reported options barriers at 83.50, though paid little attention to further comments from FinMin Noda. He repeated that decisive measures will be taken on the JPY’s rise when needed and that recent currency moves are clearly one-sided. He was a bit more specific on the “moves”, saying they included FX market intervention. He remains “very concerned” about the JPY’s effect on the economy and is watching currency movements with “great interest”. Sounding a bit like a broken record, does he think markets are not paying enough attention to him? And will he surprise with intervention sometime soon?

In the meantime, data from the Finance Ministry released this morning gave some credence that “real money” has in part been behind the JPY’s recent rise. China extended its buying of short-term Japanese bills by a net ¥640.8 bln in July, up from June’s ¥508 bln, but was a net seller of medium- and long-term JGBs to the tune of ¥57.7 bln, still a net positive inflow of ¥583.1 bln. In other data releases, loans growth continued to decline into August with a steeper 1.9% y/y drop from -1.8% in July. Granted some of the additional decline can be from base effects as loans growth peaked in May last year, but it still suggests weak demand and continued deflationary fears. Meanwhile current account data showed an increase in the current account surplus to ¥1675.9 bln, better than expected, and the first annual increase in 3 months. Core machinery orders, a leading indicator of capital spending, rose by a solid 8.8% in July from the previous month, well above market forecasts of 2.0% and a modest 1.6% the previous month.

On the data calendar for today we have German trade data, UK house prices and industrial production, Swedish GDP and German industrial production on tap in Europe while the North American session is dominated by Canadian data with building permits and the Bank of Canada rate announcement all scheduled. There are no scheduled releases for the US.