FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
The euro stayed buoyed in Europe by Germany‘s passage of the EFSF upgrade. Parliamentary sources reported that the vote split was 523 for versus 85 against, with 3 abstentions. Crucially, Chancellor Merkel won the vote without relying on the opposition, contrary to fears beforehand that dissent in her party would be high. Elsewhere, the AUD, CAD and NZD risk currencies came under pressure amid directionless equity markets.
The US reports a Q2 GDP revision (UBSe 1.3%), weekly jobless claims (UBSe 415k) and pending home sales (UBSe -2.5%). The US economy and labour market remain under scrutiny following Bernanke’s comments yesterday.
EUR
The euro climbed higher in European trading as markets priced-in a successful passing of the EFSF vote in the German parliament. Parliamentary sources said that vote split was overwhelmingly in favour of the changes, at 523 votes in favour versus 85 against and 3 abstentions. Crucially, Markel won the vote without relying on the opposition, fears has initially been voiced that dissent within the party would be high. CDU’s Altmaier said 315 coalition lawmakers voted in favour, out of a coalition total of 331.
The German Finance Minister said that speculation over changes to the EFSF beyond EUR211 bn for German contribution is indecent and reiterated his stance that the aid payment for Greece is only possible after the troika conditions are met by Greece.
Eurozone Sept consumer confidence came in at -19.1 vs -18.9 consensus.
Finland‘s parliament has approved the EFSF expansion, in a vote of 103 to 66. Prime Minister Katainen said the collateral demands of the countries were still under discussion but likely to be agreed within days or weeks. However this is only one of many ratifications due, there are 8 more with Germany deciding on Thursday. Slovakia is also striving to reach a decision and Premier Radicova said a vote must be held before the October 17th leaders’ summit. Delays in any country could cause more risk aversion, as Greece is already struggling to obtain approval for the next tranche of aid by October 3rd.
EU’s Barroso said deeper integration of the Eurozone will allow for issuance of joint sovereign debt. It should be noted that he will have no personal say in the matter as it is up to national Governments to decide but he has been a known supporter of the policy.
The European Union proposed a financial transaction tax which would take effect in three years. There is still much division within the Union on this measure, with several non-Eurozone members opposing the move, though new statements have allowed some room for flexibility.
France has announced it would trim debt issuance next year, as a part of a deficit reduction plan. However, the country has denied that its banks need more capital, noting they can face their current situation.
GBP
The UK Debt Management Office said that overseas investors sold net GBP749 mn of gilts in August. This is the first month that holdings have been cut since March.
The BoE’s Chief Economist Spencer Dale said the global economic slowdown looks more persistent now than previously. With regards to inflation he said that the UK is close to the peak now but expects large declines in the next year. He added that he is pretty sure QE would work again as a policy if the BoE decided to do more. Dale, like the majority of the MPC is moving closer towards voting for more easing, a policy which is yet to be priced into sterling, in our view.
UK M4 money supply fell 0.2% m/m and 0.6% y/y, after no change on the month and a 1.1% y/y fall in July.
JPY
Retail sales figures released overnight were disappointing as consumption contracted by 1.7% on the month in August (cons. 0.2%m/m).
A Magnitude 5.6 earthquake jolted the Fukushima prefecture in Northeast Japan but no tsunami warning was offered and there were no reports of abnormalities.
CAD
Canadian Finance Minister Flaherty said the current flight to the dollar has had an impact on the Canadian dollar. He declined to comment on a meeting held today with the BoC and the Prime Minister. He reiterated that Europe needs to ‘overwhelm the debt crisis.
AUD
RBA’s Broadbent said overnight that a Greek default could have indirect impact on Australia, though the RBA board is more concerned about the domestic economy’s vulnerability to Europe that than banks.
NZD
New Zealand Finance Minister Bill English said overnight that the country’s growth forecasts may be lower in the coming years. RBNZ Governor Bollard said he was comfortable with the official cash rate at current levels.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURUSD BEARISH Break below 1.3479 would expose 1.3363. Near-term resistance is at 1.3797.
USDJPY BEARISH Key support is at 75.95; a break here would expose the psychological level of 75.00. Resistance is at 77.00.
GBPUSD BEARISH Initial support is at 1.5526 ahead of 1.5433. Resistance comes in at 1.5748 ahead of 1.5821.
USDCHF BULLISH Initial resistance is at 0.9058 ahead of 0.9183, a key high from Sep. 22. Key support lies at 0.8647.
AUDUSD BEARISH Decline through 0.9702 would open 0.9622. Resistance is at 0.9986.
USDCAD BULLISH Rise through 1.0358 would open the key high of 1.0386. Key support lies at 1.0144.
EURCHF BULLISH Strong resistance area is at 1.2346/1.2403, a break through this would expose 1.2646. Support lies at 1.2012.
EURGBP BEARISH Drop below 0.8632 would open 0.8593. Resistance is at 0.8772.
EURJPY BEARISH Initial support lies at 102.85 ahead of 101.94, Sep. 26 low. Resistance is at 105.33.
SCHEDULE
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