Mixed market news weaken the Euro
Risk aversion continues to ease as markets look forward to an end of the eurozone debt crisis. The weekend G20 Finance Ministers and Central Bank Governors meeting in Paris looked forward to the outcome of the European Council meeting on October 23rd to ‘decisively address the current challenges through a comprehensive plan.’ The clear hope is that the G20 Heads of State meeting in Cannes will see an agreement on the scale of the Greek default as well as additional infrastructure investment to help support economic activity in the periphery. The hard deadline will keep investors happy for now, but with the risk of a sharp sell-off should the weekend meeting prove too vague.
Still, we would not be surprised to see European bourses open up by 1% this morning, but note that most are still some 10% below their level a year ago, with only the FTSE-100 and the IBEX 35 managing to limit their declines to 5%.
The euro is now testing $1.39 against the greenback as sentiment improves. The single currency cautiously advanced against sterling, but at £0.8780 the cross has only managed to eke out 10 pips during Asian trading. With many in the market seeing sterling as ‘undervalued’ the pound could prove surprisingly resilient. Overnight news from Right move showed asking house prices rising by 2.8% in October alone, which would normally support consumption through wealth effects. With mortgage availability proving scarce, a surge in prices could deter potential buyers from entering the market, but with Bank Rate set to remain around emergency levels for an extended period, a benign interest rate environment will support property prices for now.
The Empire State Manufacturing Survey has proved weaker than the ISM survey in recent months, which could reflect compositional differences, with the Empire survey picking-up the weakness in small companies that have struggled to get credit. The market is looking for the headline index to rise from -8.82 to 4.00 in October, which would mark its highest level since July. The Empire survey’s undershooting of the ISM manufacturing index suggests that there is some scope for disappointment, but we are hopeful that this will prove temporary, given the upside risk for industrial production.
The market is looking for a 0.2% increase in US September industrial production, but there seems to be a very strong upside risk coming from the strength of automobile production. That means that all of the increase will come from manufacturing production with warmer weather suppressing utilities output. A 0.4% rise would see production up by 1.5% in the third quarter, which will help solidify market expectations for a 3% annualised growth rate. It seems that advanced economies are rapidly regaining momentum as the supply chain disruption following the Japanese earthquake and tsunami fades.
What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.