South African Rand
Mild weakness kept the South African
rand only incrementally stronger against the US dollar towards the New York close as the
currency continued to rise for the second straight session. Although momentum was gathered on
rather bullish statements yesterday by central bank Governor Tito Mboweni, a
slight sell off in bonds helped to reign in rand gains on the day. Subsequently, with an economic calendar
devoid of any reports, traders pared back some long positions in the South
African major as gold prices took a tumble in the overnight. Under pressure, the precious metal
contract declined in the overnight to $619.51, down from over $621 an ounce in
London. Platinum was also lower, falling as much
as 1.7 percent as investors moved capital to more aggressive instruments in
equities. Although a correlation
vaguely exists between the emerging market currency and gold, the two have moved
in tandem in the short term based solely on the fact that the economy is the
world’s largest exporter. As a
result, lower prices are likely to crimp higher expected growth in the
country. Separately, traders are
focusing in on the interest rate announcement expected in more than a week’s
time. With rates already higher at
a record 8.5 percent, expectations are mounting of another round of tightening
as inflationary pressures emerging from continued domestic strength are
increasingly concerning to policy makers.
The sentiment has added pressure to benchmark bonds which are higher by
six basis points on the day as the note price advanced. Conversely, equities were lower on the
session as precious metal miners led declines on the day. In Johannesburg, the FTSE/JSE Africa All Share
Index lost 14.95 points to 23,659.44.
Mexican
Peso
The Mexican peso continued to advance
against the US dollar as well, going on momentum from yesterday’s industrial
production report. Rising by 5
percent and beating earlier consensus estimates of a slowdown to 4.9 percent,
the industrial production report continues to favor healthy expansion in the
North American economy. Notably,
manufacturing increases were on an annualized 4.4 percent, as mining and non-oil
production added a whopping 4.8 percent.
The figures naturally point to an appreciating Mexican peso ahead of the
gross domestic product report expected for tomorrow. Should reports continue to have a
bullish tone, rising above the 4.5 percent consensus estimate, central bankers
may indeed call for a bottom to recently lowered sentiment on the health of the
economy, further boosting notions of stable interest rates. However, the only caveat seems to be the
US economy. With declining fundamentals, the current
slowdown in the US may spill over into the Mexican
economy, quashing any exponential growth in the near term. This will likely keep central bankers on
their toes, awaiting solid confirmation of growth in the region before making
decisive direction. Stock investors
seem to be against expectations, bidding the BOLSA benchmark to a record on
October 13th.
Comparative to the longer term, the story was different today as the
index fell 70.17 points to 24,217.89, declining for the first time in six
sessions. With sentiment siding
with overextended valuations in shares, traders pared back positions
slightly.
Nordics – Swedish,
Norway and Denmark
Nordic activity was narrower on the
session after traders digested data earlier in the overnight. Propping up the underlying currency was
the wholesale price report in Denmark. Although showing an increase in
wholesale prices for the month of October, the annualized figure remained well
stabilized and continues to support sentiment of another round of rate hikes, a
common sentiment by all three Nordic based central banks. For the record, the report on the
monthly comparison dipped 0.2 percent, less than the whole percentage point
decline in the prior month. Equally
bullish for the economy was the Norwegian trade balance figure. Although the actual number added to some
bearishness on the session, it remains overall positive for the economy and
indicative of the rising strength of the country’s consumer. For the month, exports rose a whopping
9.7 percent on the month to 66.6 billion Krone while imports additionally
advanced to 39.8 billion from 34.5 billion in the prior month. Granted, the overall surplus dipped
below the consensus of 27 billion for the month. However, the rise in imports shows a
more supported consumer base strengthened on a tight labor market. The unemployment rate dipped to the
lowest level since 1988 as employment prospects in the country have
exploded. As a result, although the
headline figure may suggest weakness for the EM currency, underlying strength is
likely to keep interest in the Krone on the bid side. Separately, traders are anticipating the
unemployment rate for Sweden later in the overnight. Printing a 4.9 percent in the previous
month, the report is expected to decline to 4.8 percent, boosting notions for
further rate advancement by the Riksbank.
Hong
Kong
Dollar
Setting the tone, traders are
awaiting the unemployment report, expected to be released in the overnight. Estimates have pitted the report to
decline to 4.6 percent in the month of October, falling from the 4.7 percent
rate in the previous month of August.
The scenario is likely to confirm further growth in the Asian tiger
economy, as positive employment will boost domestic spending and fall in line
with the previous Brunswick manufacturing survey. The purchasing managers index rose
better than expected as overall production and manufacturing activity was
bolstered in the month.
Subsequently, the unemployment report should work well into the consumer
price index scheduled for next week, supporting further incremental appreciation
in the underlying currency. Adding
to bullish sentiment, and ultimately, keeping US dollar bias to a minimum ahead
o f the 7.7850 figure, was the Hang Seng index. Rising to close above the 19,000 level
for the first time, the benchmark index was heavily supported following a
mainland industrial production report.
Although showing the slowest rate of growth in 22 months in October, the
report lends to sentiment that less policy will be implemented in attempting to
suppress expansion in the country.
The notion helped to underpin healthy expectations in the Hong Kong economy, with bidders coming in from all ends
bidding shares of property developers and China Mobile Ltd. As a result, the benchmark stock index
advanced 214.58 points to 19,093.00 at the close.
Singapore Dollar
Prospects for the city-state’s
currency narrowed on the session following a disappointing retail sales figure
for the month of September.
Although making an advance on the month of 1.7 percent, the release falls
well short of the 3.3 percent consensus estimate expected by the market. Department store sales were higher by a
whopping 7 percent. However, wider
losses in auto sales suppressed any explosive gains in the report. Lending to immediate weakness in the
currency, the resultant effects are likely to be temporary as the economy’s
consumers continue to remain strong, backed by a tight labor market spurring
wage advances. Subsequently, the
lackluster results are likely to accompany the upcoming non-oil exports report,
which is additionally expected to show a slow down. For the month of October, exports are
expected to drop to an increase of 6.5 percent compared to the previous month’s
8.3 percent annualized rise.
Separately, equities were bolstered on a release by the second biggest
property company in the country.
City Developments Ltd. led advancing issues after the company stated
profit that almost quadrupled, lending a positive bias on real estate
shares. As a result, the Straits
Times index added 17.74 points to 2,777.62 at the close, rising higher to a
record for the second straight day.
