Economic Data

  • Japanese Housing Starts in August -38.3% from -32.1%, expectations -31.8%
  • Japanese Construction Orders in August -25.2% y/y from -42.8%
  • French PPI in August +0.4% m/m from -0.1% in July and +0.7% in June. Expectations for August were +0.3% m/m
  • Spanish Q2 House prices -7.7% y/y from -7.6% in Q1
  • Spanish Current A/C balance in July – Euro 2.05 bio from Euro 3.33 bio in June
  • German seasonally adjusted unemployment rate for Sept 8.2% from 8.3%, expectations of 8.4%
  • German sa change in employment for Sept -12,000 from -1,000 versus expectations of +20,000
  • German nsa in employment for Sept -125,000 to 3.346 million from 3.472 million
  • Italian PPI for August +0.6% m/m from -0.5% (revised from -0.4%) -6.7% y/y from -7.6% in July. Expectations were +0.4% m/m -7.8% y/y
  • UK Services Sector Output -0.2% 3m/3m in July from -0.6% in 3m to June
  • Italian CPI for Sept -0.2% m/m from +0.3% in August +0.2% y/y from +0.1%
  • Italian preliminary HICP for Sept +0.6% m/m +0.3% y/y from +0.1% m/m +0.2% y/y the previous month in line with expectations
  • Swiss Kof Leading Indicator higher at 0.85 in Sept from -0.04 in August, expectations were +0.5

Comments

  • From an IMF Official Reforms are needed when dealing with weaker banks before the authorities can withdraw their support. Much stronger support is needed to bolster bank capital to support lending. The spokesman also added that European and British banks have only recognized just 40% of expected write downs and further deterioration in bank’s loans is yet to come. Global financial stability has improved but risks remain elevated. The banks have enough capital to survive but remain under leveraging pressure.
  • Japanese Finance Minister Fujii says he has no plans to raise the rise of the Yen at G7. He will tell G7 that Japan sees global co-operation as important and that Japan will pursue domestic demand led growth. He reiterates G7 still has a role to play.
  • David Miles a member of the Bank of England’s Monetary Policy Committee (MPC) says the effectiveness of QE cannot be judged by looking at intermediate money supply targets, evidence has to be seen across the board that QE is having an effect. It is not possible to feel very confident about the precise impact of QE because if it is irreversible that would be the main reason to go slowly. The timing of reversing would depend on the economic outlook and prevailing financial market conditions and need not be at the same pace at which it was built up.
  • The ECB will lend banks Euro 75.241 bio in the second of its planned 3 one year refinancing operations. This fell well short of the Euro 135 bio the market had been expecting. It suggests banks may now have greater confidence in their liquidity needs and are no longer as dependant on the ECB for funding. For markets it could mean tighter liquidity conditions.

Currencies

  • Euro opening up around 1.4620 tried in a tight range until Europe cam in when dollar was sold off a little and euro crept up to 1.4640. Following a brief sell off Euro turned higher buoyed by better than expected German unemployment data and then extra impetus from the ECB tender when it posted it’s session high of 1.4673.
  • Dollar yen opened up around 89.80 and was sold off through late Asian trading to the 89.55 level before rallying back to its highs. On the back of Japanese Finance Minister’s comments was sold off taking out the bids on the way down before meeting solid bids at 89.35-40 level. It is now creeping higher to 89.60.
  • Sterling got a boost in early London trading from better than expected sales data from department store Marks & Spencer moving to 1.6050, Cable spiked to 1.6075 on rumors of a large euro sterling order to sell Euros relating to the payment of an EU annual subsidy to UK farmers circulating in the market coming from a UK news radio station. Cable remained bid throughout the rest of the morning on the back of dollar weakness.
  • Dollar Swiss traded the early part of the session in a 1.0325 – 40 range before it dipped to 1.0310 on the dollar sell off. On the release of the far better than expected the Swiss Franc strengthened to a low of 1.0284 and now trades slightly higher.

Ranges

  • EUR / USD 1.4597 / 1.4673
  • USD / JPY 89.36 / 89.82
  • GBP / USD 1.6002 / 1.6108
  • USD / CHF 0.0284 / 1.0342
  • AUD / USD 0.8779 / 0.8835
  • NZD / USD 0.7184 / 0.7226
  • EUR / GBP 0.9078 / 0.9135

Stock Markets

  • Nikkei closed at 10,133-23 higher by 33-03 (+0.33%)
  • Hang Seng closed at 20,849-70 lower by 163-47 (-0.78%)
  • Kospi closed at 1,673-14 lower by 16-91 (-1.0%)
  • Shanghai Composite Index closed at 2,779,426 higher by 24,886 (+0.9%), ending Q3 with a 6% loss it’s worst quarterly loss this year.