US Dollar –
Advance retail
sales data couldn’t come to theUS
single currency’s aid as the dollar, overall, fell on the session against the
majors. Somewhat encouraging,
retail sales data for the month of August showed that the US
consumer, although reluctant, is still spending in the world’s largest
economy. Rising by 0.2 percent on
the monthly comparison, the actual figure trumped the consensus decline of 0.2
percent and continued the positive vibe following the 1.4 percent rise in
July. However, somewhat conversely
discouraging is the fact that the core figures, excluding the volatile auto
component, fell below the 0.3 percent consensus figure as the prior month’s
number was revised lower. This
little tidbit is likely to add to growing dollar bearishness as greenback
enthusiasts are combing desperately to find one piece of economic data that may
turn the current end to monetary tightening. At this point, it seems only that
employment prospects may be giving the particular indication. Initial jobless claims on the day rose
less than expected and has been for the past five weeks. Subsequently, the decline has brought
the four week moving average lower, adding to sustained employment growth
speculation and will likely keep hopes high for another in-line figure when the
first Friday of the month rolls around.
Separately, Fed Governor Susan Bies spoke on Thursday as she defended
recent risk management proposals for commercial real estate investment.
Euro – The euro was bid on the session
following hawkish comments issued by European Central Bank President Jean Claude
Trichet, reinforcing the hawkish bias by policy makers. In an interview with Italy’s
L’Espresso magazine, Trichet reiterated his previous pledge to act in accordance
with “strong vigilance” to curb inflation noting the importance of intervening
before “these effects materialized”.
Remaining within the pledge for more transparency, the comments were a
clear suggestion that policy makers will indeed follow the recent trend of rate
increases as we approach year end.
The central bank has raised benchmark rates four times already since last
December in order to remain preemptive on inflationary pressures built by the
recent rise in commodities. In
addition, other factors on the economy have lent strength to the notion
including rising exports and hopeful consumer consumption in the face of
increasing unemployment. In the
overnight, Euro Zone labor costs rose more than expected. Consensus estimates had the figure
rising 2.3 percent, a follow-up to the 2.2 percent seen in the previous
month. However, the figure
continued to surprise, posting a 2.4 percent increase. Although not
comparatively higher against US labor costs, the figure is
reflective of inflationary pressures as they coincide with higher consumer price
estimates of 2.5 percent.
Ultimately, with the US tightening campaign likely to end,
the renewed tightening taking place in the Euro zone should definitely feed
proponents of the 12-nation currency.
British Pound – Sterling prospects continued to be
buoyed in the North American session as key data pointed to further expansion in
Europe’s second largest economy. In the overnight, retail sales rose
positively in line with consensus estimates. The surprising part was that the
annualized figure popped higher by 4.3 percent, above the consensus estimate of
a 4.1 percent rise. Not only did
the report bounce back from the monthly decline seen in July, but it also rose
above the 4 percent seen in the prior month as the figure was revised
higher. Now with consumers visibly
back in full force, central bankers will likely consider another rate hike at
the end of the year, boosting the return on pound based assets as well as the
underlying currency. Subsequent
housing data reinforced the sentiment as the RICS house price balance continued
the current strand of optimism set by both the Nationwide and HBOS reports. For the month, the survey ended higher
printing a 35 percent versus earlier estimates of a 32 percent rise. Either way, policy makers’ prayers over
consumer weakness have been answered as previous pessimism has likely abated on
house price stability and rising economic prospects. Bullish for the underlying currency,
traders will likely want to see a simultaneous uptick in next week’s CBI
industrial trends survey. Although
sustained, manufacturing weakness may call into question the rosy picture that
has been witnessed in the UK economy.
Japanese
Yen
– Japanese data was light on the session with a handful of reports that were
relatively disregarded by the masses.
For the record, machine tool orders for the moth of August rose 4.8
percent, better than expected and bankruptcies climbed at a 1.5 percent
pace. Taking the bulk of the focus
today, however, was the Reuters Tankan survey. A monthly survey of leading indicators,
the report suggested that even more dire straits are expected for the world’s
second largest economy. With retail
sales figures and industrial production reports taking a hit, the market
surveyor can add to the list corporate pessimism. According to the diffusion index of
manufacturing firms for September, business confidence among firms worsened in
the month compared to the three months prior. Subsequently, companies feeling the
costs of higher raw material prices took the survey down by 9 whole points. Smaller in scale, the report is well
suggestive that markets may be in for a lower than expected headline Tankan
released by the Bank of Japan next month, feeding yen bearishness. However, interestingly enough, the
results counter the capital expenditures report earlier in the month that showed
continued investment by firms on rising expectations of increased demand in the
short term. This fact alone will
likely keep parties waiting for the central bank report before furthering their
directional assessment.
