The Euro was little-changed in overnight trade, with prices drifting sideways in a narrow range below the 1.36 figure as markets digested NY-session gains. The British Pound edged higher, adding 0.2 percent against the US Dollar in what appeared to be a correction after the UK unit underperformed its major counterparts in US hours.
Japan’s Tankan Survey of large manufacturers’ sentiment narrowly topped expectations, with a gauge of firms’ assessment of current conditions climbing to the highest in since the first quarter of 2008. The details of the report point toward a far less rosy outcome than the headline figure would suggest, however. Indeed, the third-quarter increase amounts to the smallest in over a year, while the forward-looking Outlook index unexpectedly dropped into negative territory. Furthermore, a forecast for capital spending growth in the year through March 2011 was downgraded to 2.4 percent, marking the first decline this year, amid expectations for an increase of 3 percent following a gain of 2.7 percent in the second quarter.
Taken together with lackluster export figures released earlier this week, the outcome may prod policymakers to step up efforts to drive down the still-buoyant Japanese Yen after intervening into currency markets for the first time since 2004 earlier this month and allegedly stepping in again last week. The Ministry of Finance is set to reveal the sum total of September’s intervention efforts on Thursday, promising to offer a clue on Japanese authorities’ commitment to depreciating the currency as standby policy tool as well as its goal, whether it be to protect a given price level or manage volatility.
New Zealand’s Trade Balance deficit widened to NZ$437 million in August as exports plunged 11.5 percent to NZ$3.15 billion, the lowest in nine months, led by declines in shipments of dairy and meat products, which fell 33 and 31 percent respectively. Exports make up close to a third of overall economic growth, with today’s report reinforcing the likelihood that the Reserve Bank of New Zealand will keep monetary policy unchanged at its meeting in late October and trimming the outlook for future rate hikes, with a Credit Suisse gauge of priced-in policy changes over the coming year dropping 3 basis points to a four-week low following the release.
The economic calendar looks fairly tame in European hours. The Euro Zone Business Climate Indicator is expected to tick lower for the second consecutive month in September after snapping a 15-month winning streak in August while Economic Confidence – a composite gauge of industrial, consumer and service-sector sentiment – is expected to tick lower for first time since May. The figures may not prove market-moving in and of themselves however, amounting to little more than a reinforcement of economic slowdown expectations for the second half of ht year that have likely been priced in at this point.
Rather, Euro price action is likely to focus on the announcement an EU announcement of proposed changes to sanctions for countries that violate the Stability and Growth Pact, a treaty setting budget deficit limits for member states meant to prevent future sovereign risk flare-ups akin to the scare on the region’s southern periphery (most notably Greece) earlier in the year. Traders will size up the details of the proposal to gauge the single currency’s viability as an alternative to the US Dollaramid fears that the greenback will suffer if the Federal Reserve unleashes another round of quantitative easing (QE). Meanwhile, the European Central Bank will announce the results of yesterday’s offering of a 3-month lending facility; the 7-day facility offered earlier this week saw an uptake of 166.4 billion euro, so an outcome at or above 59 billion euro today will mean that Friday’s expiry of 225 billion across three LTROs (as we discussed in our weekly fundamental trends monitor) will not amount to a shrinking of the money supply, which promised to boost the single currency.
Turning to the UK, Mortgage Approvals are set to drop to the lowest in five months in August while Net Consumer Credit declines to 0.1 billion pounds. Elsewhere, the Bank of England will release updated M4 Money Supply figures, with the focus likely to focus on a 3-month annualized gauge that factors out deposits in OFCs – decoded as “other financial institutions” – that specialize inintermediation between banks, a measure that is believed to give a more accurate measure of “core” money supply growth. The figures may prove to weigh heavily on the British Pound as weak lending growth would spur fears of renewed QE efforts.
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