Daily Market Comment – Yen flirts with intervention level, UK budget U-turn lifts pound
- Dollar mixed as yen and euro struggle, pound extends rebound on budget hopes
- Stocks lack direction as Credit Suisse woes add to outlook worries
- US ISM and jobs data eyed as Fed reiterates inflation-busting policy stance
The third quarter got off to a subdued start on Monday as there was no respite for equity markets from the worsening economic landscape globally, though major currencies were able to bounce back amid a more cautious dollar and some positive headlines out of the UK. After a busy week of Fed commentary where policymakers doubled down on their 2% inflation goal, recession risks continue to dominate even as investors battle new headwinds.
One such unexpected headwind has been British finance minister Kwasi Kwarteng’s tax-cutting mini budget that was met with an unforgiving response by the markets, wiping out billions from UK assets and forcing the Bank of England to step in with emergency bond purchases. But as the Conservative party annual conference gets underway, Kwarteng and Prime Minister Liz Truss appear to be exercising some damage limitation.
Kwarteng has just announced that he is ditching his plan to abandon the top rate of income tax of 45% following a revolt by Tory MPs who threatened to vote against the budget. Although this won’t completely solve the issue of the UK’s ballooning debt, it is a step in the right direction and investors may be hoping that more U-turns are on the way.Sterling recoups more losses but euro’s rebound slows
Sterling climbed back above $1.12 on the back of the headlines, having been unable to close above the level on Friday. The Australian and New Zealand dollars were today’s other big gainers, making up for lost ground after failing to join in the euro’s and pound’s rebound last week.
But the euro hit a stumbling block following stronger-than-expected inflation data on Friday. The Eurozone’s headline rate of inflation hit a new record high of 10.0% in the September flash estimate, adding to fears that the European Central Bank will have to hike rates even more aggressively. With the war in Ukraine still raging, Russian gas supplies continuing to fall and inflation proving stickier than anticipated, a recession seems almost certain in Europe.
Nevertheless, after coming under pressure from the data, the euro has managed to claw its way back above the $0.98 handle on Monday and it was the yen that was having a hard time.Yen hits danger zone despite softer dollar
The dollar, while flat against a basket of currencies, is attempting to push its way above 145 yen as a disappointing Tankan survey weighed on Japan’s economic outlook. The latest brush with the level that prompts the Bank of Japan to intervene comes despite fresh warnings by Japan’s finance minister on the yen’s weakness and some signs of a policy shift by the BoJ. In the Summary of Opinions of the September meeting, some policymakers appeared to be calling for an exit strategy out of stimulus amid concerns that inflation may significantly overshoot the Bank’s projections.
The fact that the yen is struggling so much on a day where the dollar is generally softer doesn’t bode well for the Japanese currency. The dollar seems to have taken to the sidelines today ahead of the IMS manufacturing PMI due later in the US session, while there’s likely to be some caution as well about Friday’s jobs report, which will be the last before the November FOMC meeting.Pain not over yet for stocks
In equity markets, US stock futures were swinging between losses and gains after Wall Street posted its third straight quarter of declines. Some investors might have been encouraged by comments from the Fed’s second in command on Friday after Brainard seemingly put a bit more emphasis on the downside risks than her colleagues, though the overall message was the same.
This could be lending some support to US equities but the mood in Europe was decisively negative today, with the major bourses declining by about 1%. Worries about the imminent collapse of Credit Suisse – Switzerland’s second largest bank and one of the largest in the world – dogged European markets. Credit Suisse shares were last quoted down more than 9% on fears that the bank may struggle to raise the capital it needs to stay afloat.
In Asia, Chinese markets are closed for Golden Week and will not be trading this week, while shares in Sydney hit a 3½-month low ahead of the RBA’s policy decision early on Tuesday.
Disclaimer: Ang mga kabilang sa XM Group ay nagbibigay lang ng serbisyo sa pagpapatupad at pag-access sa aming Online Trading Facility, kung saan pinapahintulutan nito ang pagtingin at/o paggamit sa nilalaman na makikita sa website o sa pamamagitan nito, at walang layuning palitan o palawigin ito, at hindi din ito papalitan o papalawigin. Ang naturang pag-access at paggamit ay palaging alinsunod sa: (i) Mga Tuntunin at Kundisyon; (ii) Mga Babala sa Risk; at (iii) Kabuuang Disclaimer. Kaya naman ang naturang nilalaman ay ituturing na pangkalahatang impormasyon lamang. Mangyaring isaalang-alang na ang mga nilalaman ng aming Online Trading Facility ay hindi paglikom, o alok, para magsagawa ng anumang transaksyon sa mga pinansyal na market. Ang pag-trade sa alinmang pinansyal na market ay nagtataglay ng mataas na lebel ng risk sa iyong kapital.
Lahat ng materyales na nakalathala sa aming Online Trading Facility ay nakalaan para sa layuning edukasyonal/pang-impormasyon lamang at hindi naglalaman – at hindi dapat ituring bilang naglalaman – ng payo at rekomendasyon na pangpinansyal, tungkol sa buwis sa pag-i-invest, o pang-trade, o tala ng aming presyo sa pag-trade, o alok para sa, o paglikom ng, transaksyon sa alinmang pinansyal na instrument o hindi ginustong pinansyal na promosyon.
Sa anumang nilalaman na galing sa ikatlong partido, pati na ang mga nilalaman na inihanda ng XM, ang mga naturang opinyon, balita, pananaliksik, pag-analisa, presyo, ibang impormasyon o link sa ibang mga site na makikita sa website na ito ay ibibigay tulad ng nandoon, bilang pangkalahatang komentaryo sa market at hindi ito nagtataglay ng payo sa pag-i-invest. Kung ang alinmang nilalaman nito ay itinuring bilang pananaliksik sa pag-i-invest, kailangan mong isaalang-alang at tanggapin na hindi ito inilaan at inihanda alinsunod sa mga legal na pangangailangan na idinisenyo para maisulong ang pagsasarili ng pananaliksik sa pag-i-invest, at dahil dito ituturing ito na komunikasyon sa marketing sa ilalim ng mga kaugnay na batas at regulasyon. Mangyaring siguruhin na nabasa at naintindihan mo ang aming Notipikasyon sa Hindi Independyenteng Pananaliksik sa Pag-i-invest at Babala sa Risk na may kinalaman sa impormasyong nakalagay sa itaas, na maa-access dito.