Daily Market Commentary

Fundamental Outlook at 1400 GMT (EST + 0400)

€

The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4765 level and was supported around the $1.4685 level.  Data released in the U.S. today saw July personal spending rise 0.2% but when adjusted for inflation, it was off 0.4%, the largest decline since June 2004.  Also, personal income fell 0.7%, much lower-than-expected and the largest decline since August 2005.  The core personal consumption expenditures price index that excludes food and energy rose 0.3% in July while the headline PCE price index was up 0.6%.  On an annualized basis, the core PCE price index has risen 2.4% - well above the Fed’s perceived comfort zone of 1.5% to 2.0% - while the headline PCE price index is up 4.5% y/y.  Other data released in the U.S. today saw the final August University of Michigan consumer sentiment indicator improve to 63.0 from 61.2 in July while the August Chicago PMI index improved to 57.9 from 50.8 in July with the prices  paid component lower at 80.6.   In eurozone news, EMU-15 consumer price inflation slowed more than expected in August, falling to 3.8% y/y from 4.0% y/y but still significantly above the European Central Bank’s 2.0% inflation target.  Also, EMU-15 economic sentiment fell to 88.8 in August from 89.5 in July and consumer confidence ticked up to -19.  European Central Bank member Liebscher echoed comments from other policymakers this week saying inflation is too high.  Notably, six-month Euribor interbank lending rates reached an all-time high today with six-month rates at 5.197%.  Also, German July wholesale sales were up 0.3% m/m and 3.5% y/y and the EMU-15 unemployment rate was stable at 7.3%.    Euro bids are cited around the US$ 1.4315 level.

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥108.40 level and was capped around the ¥109.55 level.  The pair moved to its lowest intraweek level following the release of many Japanese economic data. The Japanese government announced that its economic stimulus package will aggregate ¥11.7 trillion with ¥2.0 trillion of its financed by a supplemental budget.  Economics minister Yosano said he is concerned about escalating inflation in Japan and said prices could accelerate more.  Data released in Japan overnight saw the nationwide core consumer price index rise 2.4% y/y, exceeding forecasts.  Second, July housing starts rose 19.0%, the first rise in thirteen months.  Third, July retail sales were up 1.9%, mostly on account of fuel spending.  Fourth, July industrial output was up 0.9%. Fifth, July orders received by the 50 largest contractors were up 42.3%.  The rise in core CPI represented the fastest climb since October 1997.  Bank of Japan’s Policy Board is expected to keep the overnight call rate unchanged at 0.50% for several months.  The Nikkei 225 stock index gained 2.39% to close at ¥13,072.87.  Dollar bids are cited around the ¥106.40 level.  The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥159.75 level and was capped around the ¥161.10 level.  The British pound and Swiss franc moved lower vis-à-vis the yen as the crosses tested bids around the ¥198.35 and ¥98.85 levels, respectively.  The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8350 in the over-the-counter market, up from CNY 6.8275.

£

The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8235 level and was capped around the $1.8340 level.  Cable reached its lowest level since July 2006.  Data released in the U.K. today saw July Land Registry house prices fall 2% y/y while GfK August consumer confidence rose to -36 from -39 in July.  Additionally, IRS pay deals picked up 3.5% in the three months to July.  Cable bids are cited around the $1.8015 level.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.8065 level and was supported around the £0.8030 level.

CHF

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1000 figure and was supported around the CHF 1.0925 level.  Data released in Switzerland today saw the KOF leading growth indicator fall to 0.68 from a revised 0.85 in July, the lowest print since August 2003.  U.S. dollar offers are cited around the CHF 1.1135 level.  The euro gained ground vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.6180 level while the British pound weakened vis-à-vis the Swiss franc and tested bids around the CHF 1.9990 level.