The IMF Bear All
Brief Summary:
• After dipping to its lowest levels in 3-months, the AUD has clawed back some ground against the majors; AUDUSD was 1.0219, AUDEUR was 0.7952 and AUDGBP was 0.6384 at time of writing.
• In the US, business activity indicators and employment data brought a positive surprise to the market. Noteworthy was the unemployment rate of 7.8%, the lowest figure since February 2009; the figure, however, was not entirely due to more jobs being created (more below).
• The International Monetary Fund (IMF) delivered a particularly bearish annual world economic report. They downgraded the 2012 global growth forecast to 3.3% from 3.5% and cited “Concerns about financial stability in the Euro area and intense market stress threatened to pitch Europe, and possibly all advanced economies, into another deep recession”. Amongst others, China’s growth was downgraded to 7.8% from 8.0% in 2012 and 8.2% from 8.5% in 2013, and Australia’s growth was downgraded to 3.3% for 2012, in line with the RBA, and 3% from 3.5% for 2013. The full report can be read here: http://www.imf.org/external/pubs/ft/ar/2012/eng/pdf/ar12_eng.pdf
• On Saturday the 13th, China will release its trade balance. Market expectations are for 20.4 billion. The trade balance measures the value of exports less the value imports. A lower figure will reflect a slowdown in goods exports to the US and Europe. Conversely, a higher figure may reflect an increase in exports although; lower commodity prices will reduce the value of imports and also contribute to a higher figure.
• The Australian Bureau of Statistics (ABS) will release labour force data for September today. The change in overall employment is expected to be 4.4K new jobs with the unemployment rate expected to be 5.3%. After warnings from the RBA about weaker employment figures, there are jitters the figures will be a surprise negative.
• The RBA will also release minutes from its latest monetary policy meeting on Tuesday 16th, this may provide some further insight into future monetary policy decisions. It is worth noting that interest rate swap markets have all but priced in a 25 basis point cut for November and further cuts for the first quarter of 2013.
•Please see below for specific currency commentary.
AUDUSD
• The US celebrated Columbus day on Monday, this lead to thin trading throughout the foreign exchange market. AUDUSD found strong support at 1.0150, touching this level several times on Monday. Technical analysts note, a break below this level may lead to a further decline of the AUD towards parity. AUDUSD was 1.0219at time of writing. The AUD continues to trade bearishly and will remain sensitive to soft Chinese and Australian data.
• Some positive data in the US was released on Thursday and Friday last week and it translated into risk asset strength heading into the weekend. All three big pieces of US data last week beat market expectations.
• The Institute of Supply Management (ISM) released Non-Manufacturing Purchasing Managers’ Index (PMI), a measure of business activity excluding manufacturing, at 55.1 from 53.2 expected. This important figure followed the lead set by the ISM Manufacturing PMI of 51.5 from 49.8 expected. A figure above 50 indicates expansion and below, contraction.
• Employment data also brought a positive surprise. US Non-Farm Payrolls, a measure of change in employment, was 114,000 in line with market expectations, and the US unemployment rate dropped to 7.8% from 8.2%. This is the lowest unemployment figure since February 2009, however, it is worth noting the figure can be skewed by changes in participation rate where people retire or stop looking for work.
• The dark cloud on the horizon for the US remains the affectionately known “fiscal cliff”. Although most are sceptical it will come to fruition, the fiscal cliff refers to automatic spending cuts and tax increases due to start on the 15 of January 2013 worth about 5% of U.S. GDP. If it eventuates, the cliff is significant enough to send the US into recession. While politicians will almost certainly come to a compromise, “Uncertainty over economic conditions” and “Uncertainty over government actions” rank second and fourth in the top ten biggest concerns for US small business (The Economist). Specifically, political uncertainty clouds the horizon and stymies long term business plans such as employing people. No amount of quantitative easing will fix this problem, and coupled with the Presidential election in November, will become a pressing issue in the coming months.
AUDEUR
• The AUD rebounded from Monday’s 3-month low against the EUR of 0.7798 to be at 0.7952 at time of writing. The move has been driven by a return of the usual Euro crisis headlines.
• Spain continues to delay a bailout request despite the fact that it is clearly needed.
• Angela Merkel was greeted with protests in Athens on her first visit to Greece since 2007. Characteristically, Merkel urged for Greece to remain in the Euro and to continue with austerity and the bailout program.
• The European Central Bank kept interest rates on hold at 0.75% last Thursday.