Market Drivers August 30th, 2012
Wen – China would consider euro bonds helps firm EUR
GE unemployment 9K vs. 8K
Nikkei -0.95% Europe -0.25%
Oil at $95/bbl
Europe and Asia:
AUD Private Capital Expenditure 3.4% vs. 2.7%
JPY Retail Trade -0.8% vs. -0.1%
NZD NBNZ Business Confidence 19.5 vs. 15.
EUR German Unemployment Change 9K vs.8K
GBP Net Consumer Credit 0.9B vs. 0.9B
GBP Mortgage Approvals 47K vs. 47K
USD Personal Spending 8:30
USD Personal Consumption Expenditure 8:30
USD Initial Jobless Claims 8:30
CAD Current Account 8:30
The euro was firmer in morning European session trading near the highest levels of the day after a smooth Italian bond auction and supportive rhetoric from Chinese officials helped to keep the unit bid. The EUR/USD traded above the 1.2550 level in eth wake of Italian auction of 5 and 10 year securities that saw yields on 10 year drop to 5.82% from 5.96% the auction prior while the 5 years saw a reduction in yields to 4.73% from 5.29%. The bid to cover ratios were better as well with 10 year bonds seeing a rise to 1.42 from 1.29 the period prior.
Overall the news from EZ auctions this week shows a marked reduction in risk premia as investor concerns over the periphery sovereign debt problems begin to ease in anticipation of bond support program from the ECB. That has helped to keep euro steady above the 1.2500 level as markets await the return of the policymakers from summer vacation next week.
The euro was helped by comments from Chinese premier Wen Jiabao who stated that he was more confident about the euro area after meeting today with Merkel and promised to continue to buy EU government bonds after fully assessing risks. The Chinese of course have a vested interest in keeping the EZ stable as the region represents the Chinaâ€™s second largest export market. Furthermore, with US yields near record lows China may want reallocate part of its 3 Trillion USD portfolio into higher yielding EZ sovereign bonds in order to increase its income flows.
In economic news German unemployment rose slightly more than expected in August increasing by +9K versus estimates of +8K rise as Europeâ€™s largest economy showed signs of slowdown due to the regionâ€™s chronic sovereign debt crisis. The number of unemployed rose in August to 2.901 million from an upwardly revised 2.892 million in July. In unadjusted terms, unemployment climbed 29,000 to 2.905 million but the jobless rate was unchanged at 6.8%.
Job vacancies declined by 4K adding to Julyâ€™s decline of 7K suggesting that labor demand may be peaking as employers take a more cautious stance given the uncertainty surrounding the EZ sovereign debt market and the European union. The news confirms the overall slowdown noted in the latest PMI data and shows that growth in Germany is grinding to halt, but nevertheless remains slightly positive.
In North American session today the calendar carries personal income/spending figures as well as the weekly jobless claims data. Analysts are looking at 370K print slightly lower than last weekâ€™s 372K number. Today the Jackson Hole symposium begins but the focus will be on tomorrowâ€™s speech by Chairman Bernanke with traders looking for any clues as to the prospect of further QE measures. Meanwhile, the EURUSD remains in an almost perfect state of equilibrium with 1.2600 still the key resistance for the pair in the near term.