For now worries surrounding events in the UAE seem to have tapered off and markets have reengaged in risk correlated trades. Over the weekend, the AUE central bank stated that in order to boost liquidity it would offer liquidity to local and foreign banks. In addition, measures are expected if pressure on local markets does not ease. While local Middle East markets have opened lower, Asian regional indexes roared ahead. The Nikkei was up 2.90% and Shanghai was higher by 3.19% at the time of writing. There is growing conscious that credit events in Dubai are not a Lehman type of trigger to systemic collapse or indictment of EM environment, but merely a cautionary tale of construction booms. We are guardedly optimistic and watching events carefully (perhaps foretelling events in Greece ). The EURUSD has traded in the 1.4965-1.5085 range. USDJPY has traded from a high of 87.16 to a low of 86.04, Yet, USDJPY levels remain the key focus, as the market monitors intervention risks. Although Finance Minister Fujii was quoted in the Mainichi Daily today as stating that Japan will not weaken JPY, there is clearly a growing rift between the BoJ and the Governing LDP on proper JPY policy. Last week, Banking Minister Kamei fired a very public shoot stating that the BoJ was asleep at the wheel as usual. On the economic front, Japan's Industrial production for October continued to grow but at the more leisurely pace of +0.5% vs. +2.5% exp m/m. and although still falling on an annualized basis, the rate of decline of housing starts moderated by more than expected to -27.1% y/y vs. -33.5% exp.
The EU's mission to China ended without agreement on the future of the CNY-USD peg, as another diplomatic envoy learned what we all know. China won't move unless it's in their best interest. Eurogroup Chairman Juncker stated he was not advocating an immediate, short-term-oriented, dramatic change in Chinese monetary policy”. However, would like to see “an orderly and gradual appreciation of the CNY. After the meeting, Juncker commented I can't say that I'm more optimistic than I was before I came here.
In Australia private sector credit stagnated, showing 0% growth versus expectations of + 0.2% m/m. Q3 company operating profit weakened by -2.1% q/q. Critical Building approvals data will be released tomorrow, two hours ahead of the RBA's decision. Markets are basically evenly split over 25bp or hold for tomorrow’s rate decision. We believe that RBA to preserve its 'gradual' tightening stance and lift rates 25bp as equity markets have firmed, Dubai risk have not spilt over to the broader financial system and domestic condition warrant less loose monetary policy.
G10 Advancers and Decliners vs USD