2010 10 04

A light day in terms of economic data or news – BUT that didn’t prevent the markets from moving.

For whatever reason the stock market slid while bonds rallied. Currency and commodity markets were fairly quiet.

Since there is any notable news today to discuss, I will just lay down some general thoughts and observations.

Really the two biggest moves of late have been in USD and treasuries – no doubt both moves fueled by QE.

FX move has been most notable in EURUSD now near 1.37. AUD also has been very strong on good economic data and renewed hope of interest rate hike.

The rally in EUR has come despite continuing concerns over PIIGS as well as slowing economic momentum. Is QE really THAT big of deal to currency? What would happen when ECB needs to step in? Because that will come at some point.

Last Friday was busy with manufacturing data (ISM in US and PMI elsewhere) that comes out first business day each month. China PMI did come in better than expected, providing a bit of a boost to risk sentiment. All indications are that China reached a trough in July and now seems to be on a bit of rebound helped further by loosening financial condition. US ISM report was not bad – only slightly missed expectation – but new orders were weak which signals further slowing. PMIs basically slowed down everywhere especially in major European countries.

A very nice rally in crude as of late – thanks to decent econ data out of US and China and a welcome draw in DOE inventory report.


This coming week most important data are:

Nonfarm payroll and unemployment rate data for US comes out on Friday. If this comes in ugly watch out treasuries and USD because more QE is surely coming.

There are also some major central bank meetings – ECB, RBA, BoE, BoJ. ECB and BoE probably non-events with no new announcement. There is expectation that RBA would hike 25bps and that can give further boost to AUD. It would be interesting to see if BoJ attempts to loosen further to spark economy.

For Europe, we get the August industrial production data which would provide a pretty accurate picture of the manufacturing sector. Most likely it would show further slowing from July. If data doesn’t soften much then we’d likely have to wait longer to see US vs Europe view pan out. Sentiment toward US is definitely more negative than Europe, but so far the hard data supports that view. If this pattern holds up then USD can weaken further providing some tailwind for commodities.