Daily Market Report 17/09/12

Last week the world saw the lengths that the banks are willing to go to in order to reinvigorate their respective economies. In both the US and Eurozone, the head figures in central banking took bold stances against the high unemployment and sluggish growth that have plagued the areas.

The Fed’s decision to move into a third phase of quantitative easing, synchronised with the announcement that interest rates will stay at 0.25% into 2015 was an aggressive move, and one that critics fear will conceal dangerous inflation. With Mr. Bernanke’s future as the Fed chairman now largely based on the outcome of the presidential election this bold move could be the most monumental in his tenure.

Mr. Draghi, president of the ECB, has taken an equally strong monetary policy stance. With confirmation of the bailout funds’ legality, and the bond-buying scheme pushed through, Europe’s premier banker has staked his reputation on the decision.

Finding themselves in similar positions and adopting similar strategies by loosening monetary conditions, the respective currencies have had divergent performances. The dollar has been on the descent and the Euro rallying, but the disparity in market reactions have seen the dollar fall by the most in 11 months against the Euro.

In respect to the pound, the greenback has seen strong losses. Investors are fleeing the safe-haven nature of the dollar in search of higher yields in other riskier markets. These riskier markets, one being the Euro, have seen the consequential gains on the back of the dollar news. So for those looking to buy Euros, they will be getting less for their money than they may like, as the Euro’s strength of the last month continues.

With some believing the Euro’s charge to be running out of steam, key announcements to look out for this week include the German Economic Sentiment on Tuesday, 10y Spanish bond auction, and manufacturing data from France and Germany on Thursday. Meanwhile domestically investors should look out for CPI announcements on Tuesday, Retail Sales on Thursday and Public Sector Net Borrowing figures on Friday.

Across the pond, home sales and unemployment claims on Wednesday and Thursday, respectively, will be the main contributors to volatility in the markets. As an aside for the Yen buyers, the Bank of Japan has also indicated that it is ready to intervene and take action against the Yen’s strength versus the dollar that may be impairing Japan’s ability to competitively export.

Key Announcements to look out for today:

  • 09.00am – EUR – Current Account: Expected to come in lower at 10.9bn.
  • 10.00am – EUR – Trade Balance: predicted to marginally decrease from 10.5bn to 10.2bn.
  • 13.30pm – USD – Empire State Manufacturing Index: still negative sentiment expected but less severe than previous.

See previous Daily Market Reports