Friday 7th November: European Open Briefing

Global Markets:

• Asian stock markets: Nikkei and Hang Seng up 0.50 %, Shanghai Composite gained 1.10 %, ASX rose 0.80 %
• Commodities: Gold at $1134 (-0.80 %), Silver at $15.20 (-1.40 %), Crude Oil at $77.55 (-0.50 %)
• Rates: US 10 year yield at 2.389, UK 10 year yield at 2.248, German 10 year yield at 0.828

News & Data:

• RBA: Keep growth forecasts unchanged, hikes inflation forecasts to reflect lower A$
• RBA: A$ still above estimates of fundamental value, further fall would help rebalance economy
• RBA: BoJ easing, pension fund flows could boost appetite for Australian assets, keep A$ high
• RBA: Inflation to remain in line with 2-3 % target despite latest decline in A$
• RBA: Sees moderate jobs growth, unemployment likely to stay elevated for some time
• RBA: Wage growth seen stabilising at low levels, productivity growth to stay above average
• Japan’s Economy Minister Amari says best if FX is stable, reflects fundamentals; some say excessively rapid FX moves also undesirable
• Japan’s Finance Minister Taro Aso: Should raise sales tax as planned
• Japan’s Finance Minister Taro Aso says that there is not doubt BOJ’s extra easing is stopping deflation
• Japan’s Economy Minister Amari says excessive $JPY weakness, strength both undesirable
• SNB’s Chairman Thomas Jordan says SNB needs flexible balance sheet for monetary policy
• NZ Finance Minister English says fiscal position is challenging; will be a challenge to return to surplus

Markets Update:

EUR/USD dropped to fresh lows after the ECB press conference yesterday. Draghi said that the ECB balance sheet is set to reach the €3 trillion level last seen 2012, which means an increase by almost €1 trillion from the current levels. The bank will attempt to reach that level by buying covered bonds, ABS and through the TLTRO as well. Draghi stressed the fact that all members stand ready to take more policy action if needed to revive the struggling Euro-Zone economy. Committees and tasked staffs are preparing for these measures.

According to Draghi, there are two contingencies for further action:

• 1) Current action not enough
• 2) Inflation outlook worsens.

Should there be no big change in the inflation outlook, no decisions will be made at the December meeting, as the bank will be waiting for the TLTRO results. If TLTRO disappoints, we can expect that the ECB will take further action in January.

EUR/USD consolidated in a 1.2365-85 range in Asia. The daily close sub-1.24 support suggests we’ll see a test of the 1.2280 level soon and if that goes as well, not much chart support seen until 1.2000-50. Meanwhile, GBP/USD fell more than 150 pips yesterday on the weak econ data out of the UK this week and the renewed USD strength.

USD/JPY is approaching the 115.50 level again. We could see some position covering ahead of the NFP, but overall the pair is likely to remain bid into the data release. The charts suggest once the 115.50 resistance is taken out, there is little in the way of a 117.80 (October ’07 high) test.

Looking ahead, we have some data releases out of Europe ahead of the NFP, but no tier-1 releases. NFP is expected to arrive at 231k, while the unemployment rate is expected to remain steady at 5.9 %. We’ll also get Canadian employment data, with the employment change forecast at -5k and 7.0 % for the unemployment rate.

Upcoming Events:

• 07:00 GMT – German Trade Balance (€18.5bln)
• 07:00 GMT – German Industrial Production (2.0 % MoM)
• 07:00 GMT – German Exports (1.9 % MoM)
• 07:00 GMT – German Imports (0.8 % MoM)
• 07:45 GMT – French Industrial Production (-0.2 % MoM)
• 07:45 GMT – French Trade Balance (€-5.9bln)
• 08:15 GMT – Swiss Retail Sales (1.0 % YoY)
• 09:30 GMT – UK Trade Balance (£-9.40bln)
• 13:30 GMT – US NFP (231k)
• 13:30 GMT – US Unemployment Rate (5.9 %)
• 13:30 GMT – US Participation Rate
• 13:30 GMT – US Average Hourly Earnings (0.2 % MoM)
• 13:30 GMT – Canadian Employment Change (-5.0k)
• 13:30 GMT – Canadian Unemployment Rate (7.0 %)
• 13:30 GMT – Canadian Participation Rate (66.0 %)

Source:: Friday 7th November: European Open Briefing