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Weekly Update


Union Bank's Weekly Update provides global market information, trends, forecasting, and rates.   

September 23, 2013

  • USD down broadly after week seeing no decrease to bond purchasing by FOMC  
  • EUR remains stable after Angela Merkel retains leadership in Germany
  • Chinese manufacturing PMI comes in at a strong 51.2; PBoC sets record reference rate 


 

USD –   St Louis Fed President Bullard on Friday described last Wednesday’s taper delay decision as a “close call;” it was definitely a surprise decision that caught the market off guard. The Fed has changed the metric to judge QE tapering from nonfarm payrolls to a combination of employment data, financial markets and progress on the fiscal/government side; while pushing out higher interest rates well beyond the timing of when the unemployment rate reaches 6.5%.  In the near‐term the USD is expected to weaken, and we may not see any worthwhile USD strength until late next year. There are quite a few data releases on the US calendar this week. Worth noticing are the figures for durable goods orders for August, which is expected to rebound somewhat after last month’s large fall. Capital goods orders and shipments excluding transportation and defense are forecast to increase. This would indicate improved capex spending, which would be in line with the past two months’ strong ISM manufacturing index and a decent increase in the industrial production. A decrease in the Conference Board’s confidence index and a small increase in the Michigan sentiment index is seen moving the two indices closer together. The home indices should be interesting as we should get further information on how the interest rate increases seen over the past four months have affected the housing market. In light of the surprise decision not to taper at the FOMC meeting last week, the Fed speeches this week could prove interesting. The most important is William Dudley speaking today. Finally, we are approaching the deadline for Congress to consider the 2014 budget. The current budget resolution runs through the end of September, and if no agreement is reached before then, we face a government shutdown – again.

EUR – The euro is down 0.2 percent and has dropped below 1.35 after German manufacturing PMI dipped to 51.3.  The major event over the weekend was the German election, where Angela Merkel and her CDU party received strong support and won 311 of the possible 630 seats.  However, without achieving a majority, it is unlikely there will be a large shift in German policy as the CDU will need to form a coalition.  The Euro has remained stable as Merkel is viewed by the markets as being more pro-European than her opponent, SPD’s Peer Steinbrueck.


GBP
– The pound strengthened toward an eight month high versus the dollar before data this week will show, according to economist estimates, that GDP increased, house prices rose and consumer confidence improved.  Sterling has appreciated at least 1.1% versus all 16 of its major counterparts in the past six months amid signs the economy is gaining momentum.  The pound has climbed for the past 3 weeks against the dollar as the Fed maintained stimulus measures that have debased the dollar.  GDP, to be released on the 26th, is expected to show an increase of 0.7% for the second quarter.  This is the same increase that was seen in the first quarter and has traders believing that the Bank of England will increase rates before the Fed.


JPY
– The JPY registered the biggest gain against the U.S. dollar among 15 major currencies today, strengthening 0.42% in the Tokyo session.  The price action was attributed to an extension of the Federal Reserve Board’s $85 billion in monthly bond purchases that were retained last week.  The yen gained against most of its major peers as U.S. two-year note yields have dropped about 19 basis points since reaching 0.53 percent on Sept. 6, the highest level since May 2011. New York Fed President William Dudley expressed support for the Fed’s decision to keep accommodation as it is and that sort of dovish commentary is going
to keep pressure on the dollar until a shift in policy occurs.


Commodity Currencies
– The Australian dollar benefited from a better-than-expected Chinese manufacturing PMI reading, which bodes well for Australian exports.  Over the past two sessions the Aussie had given back gains it experienced after the FOMC decided to surprise markets and keep the bond purchasing program intact at current levels.  However, with Chinese data continuing to show a positive trend, the Aussie is up 0.5 percent and could see further gains if the trend persists.  The probability that traders see in the RBA reducing the benchmark rate by year-end from its current 2.5 percent level has gone from 62 percent at the end of last month to 41 percent.  The Canadian dollar also returned the gains experienced post-FOMC announcement over the remainder of last week, though a forecast to show retail sales rebounding in July has injected some life into the loonie, which is currently trading up 0.2 percent against its US cousin.


RMB
– Following last week’s two-day holiday, the PBoC opened up the week setting the central bank’s reference rate to an all-time high after data indicated that China’s manufacturing is expanding.  The reference rate was raised by 0.13 percent to 6.1475, the highest level since the peg ended in July 2005.  The onshore renminbi closed in Shanghai at 6.1210, 0.43 percent stronger than the reference rate and within the 1 percent trading band around which the currency can trade.  The preliminary HSBC PMI for September came in at 51.2, higher than the estimate of 50.9 and well above the reading in August of 50.1.  A reading above 50 indicates expansion in the manufacturing sector and continues to point to a pickup in economic growth in China, the world’s second largest economy.

 
  



Last Week's Currency Highs and Lows###DISCLAIMER:2_0 Currency Highs and Lows###

Currency Highs and Lows Last Week
EUR
JPY
GBP
CHF
AUD
CAD
DKK
NZD
MXN
SEK
SGD
TWD
ZAR

1.3334 – 1.3530
99.45 – 97.94
1.5896 – 1.6146
0.9273 – 0.9103
0.9318 – 0.9520
1.0324 – 1.0220
5.5933 – 5.5121
0.8170 – 0.8374
12.9308 – 12.6594
6.5149 – 6.3390
1.2619 – 1.2465
29.703 – 29.531
9.8881 – 9.5872 
  
   
    
     
      
       
 


Currency Highs and Lows for the period 09/16/2013 - 09/23/2013


U.S. Economic Indicators###DISCLAIMER:2_0 US Economic Indicators###

Date Indicators Importance Previous

Mon Sep 23
Mon Sep 23
Tue Sep 24
Tue Sep 24
Wed Sep 25
Wed Sep 25
Wed Sep 25
Wed Sep 25
Thu Sep 26
Thu Sep 26
Thu Sep 26
Thu Sep 26
Thu Sep 26
Thu Sep 26
Thu Sep 26
Thu Sep 26
Thu Sep 26
Fri Sep 27
Fri Sep 27
Fri Sep 27
Fri Sep 27
Fri Sep 27
Fri Sep 27 
  
   
    
     
      
       
        
         

 


 

USD Chicago Fed Nat Activity Index
USD Markit US PMI Preliminary
USD House Price Index (MoM)
USD Consumer Confidence
USD MBA Mortgage Applications
USD Durable Goods Orders
USD Durables Ex Transportation
USD New Home Sales (MoM)
USD Initial Jobless Claims
USD Gross Domestic Product (Annualized)
USD Personal Consumption
USD Gross Domestic Product Price Index
USD Core Personal Consumption Expenditure (QoQ)
USD Pending Home Sales (YoY)
JPY National Consumer Price Index Ex-Fresh Food (YoY)
JPY National Consumer Price Index Ex Food, Energy (YoY)
JPY National Consumer Price Index (YoY)
EUR German Consumer Price Index (YoY)
EUR German Consumer Price Index - EU Harmonised (YoY)
USD Personal Consumption Expenditure Core (YoY)
USD Personal Income
USD Personal Spending
USD U. of Michigan Confidence 
  
   
    
     
      
 

Medium
Medium
Medium
High
Medium
High
Medium
Medium
Medium
Medium
Medium
Medium
Medium
Medium
High
High
High
High
High
Medium
Medium
Medium
Medium 
  
   
    
     
      
       
 

-0.43
53.1
0.70%
81.5
11.20%
-7.30%
-0.60%
-13.40%
309K
2.50%
1.80%
0.80%
0.80%
8.60%
0.70%
-0.10%
0.70%
1.50%
1.60%
1.20%
0.10%
0.10%
76.8