- EU’s Barosso says current treaty will allow for joint Eurobonds; preparing several proposals
- German Fin Min says opposed to Eurobonds but will wait for Barosso’s proposals to evaluate
- Merkel-Sarkozy-Papandreou teleconference ends with the usual assurances
- US retail sales flat in Aug vs +0.2% Exp. Ex-autos +0.1% vs +0.3 exp. Prior revised lower
- US PPI at +6.5% y/y, in line with expectations
- Italy passes final austerity vote
- Austrian parliamentary committee ruled that parliament cannot vote on changes to the EFSF; delaying ratification but not endangering it.
- S&P: German bank ratings vulnerable
- Geithner says Europe will do what’s necessary, US will help with USD funding
- Fitch downgrades five Spanish regions, outlook remains negative
- US oil inventories -6.7M vs -3.1M exp.
- WTI crude down $1.62 to $88.58
- Gold down $8 to $1819
- S&P 500 up 1.3% to 1189; range of 1163-1202.
- AUD and CAD were worst performers, EUR and JPY led
A whippy, head-scratching day in the forex market. EUR essentially traded in lock-step with stocks. EUR/USD fell to a New York low of 1.3640 after retail sales and confused headlines about Austria and the EFSF (which later turned out to be nothing) but EUR/USD steadily climbed later on renewed hopes for joint Eurobonds after Barosso’s comments. The Merkel-Sarkozy-Papandreou was built up but resulted in the same old calls for continued austerity and with Greece pledging to do whatever necessary. EUR fell from the daily highs at 1.3784 back to 1.3750 as US stocks fell 1% in the final minutes of trading.
Hopes for a resolution in Europe and Eurobonds underpinned the entire risk trade and outshone the disappointing retail sales data. Intermarket correlations were nil with forex, stocks, commodities and bonds on completely different tracks.
USD/JPY fell to the lowest since Sept. 2 at 76.59 in a steady downtrend throughout the day. Strong demand at a US 30-year bond auction hurt USD.
