Euro manages to shrug off very weak Germany IFO Business Climate data to advance on the USD and other rivals.

From Bloomberg: German business confidence fell to the lowest in more than a year as a global slowdown and Europe's debt crisis damped the outlook for economic growth.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 108.7 in August from 112.9 in July. That's the lowest since June 2010. Economists forecast a decline to 111, according to the median prediction of 37 economists in a Bloomberg News survey. The index reached a record high of 115.4 in February.

The figures are quite disappointing but they're no reason to panic, said Juergen Michels, chief euro-region economist at Citigroup Inc. in London. The economic recovery in Germany has seen its peak but we won't see growth stagnating or a recession as order books are full and domestic demand will kick in.

Ifo's gauge of the current situation decreased to 118.1 from 121.4, while an index measuring executives' expectations fell to 100.1 from 105.

width=368In Germany, a rift has opened up over countries demanding collateral to provide aid to Greece, as a bilateral agreement between Finland and Greece opened up a new can of worms.

From Bloomberg: German Chancellor Angela Merkel rejected demands that Greece provide collateral for emergency loans as splits emerged in her Cabinet, reflecting euro-area divisions on the issue.

The disagreement at the top of Europe's biggest economy underscores risks over a second Greek aid package after the Finnish government said Aug. 16 that it secured a collateral arrangement to ensure its contribution would be repaid. Austria and the Netherlands, which both share Finland's AAA rating, called for similar deals, as did Slovakia and Slovenia.

We expect other euro-area members to ultimately reject the Finland-Greece deal, Moody's Investors Service said. But the message sent by the calls for such agreements confirms that Europe is conflicted over the very decision to provide financial support to its members, not just the amount of support.

width=383In Japan meanwhile, we may be seeing the first signs that the authorities are relenting in trying to battle back the appreciation of the Yen.

From Bloomberg: Japan unveiled a $100 billion effort to help companies cope with a surging yen, signaling that officials may be resigned to the currency remaining high.

The government will release foreign-exchange reserves to the state-run Japan Bank for International Cooperation for funding to aid exporters and spur purchases overseas, Finance Minister Yoshihiko Noda told reporters in Tokyo today. The Bank of Japan applauded the Finance Ministry's announcement, saying in a statement that the measures would contribute to the stability of currency markets. The one- year funding program through JBIC is intended to encourage the private sector to exchange yen-denominated funds to foreign currencies by supporting exports by small and mid-sized companies, securing energy resources and helping Japanese companies to purchase foreign businesses, Noda said.

Japanese authorities will try and shame speculators by disclosing their positions, and we'll see if this most recent attempt at stemming the Yen's appreciation will have much of an impact.

From Marketwatch: Japanese Finance Minister Yoshihiko Noda on Wednesday unveiled a package of measures to curb the strength of the yen, including enhanced currency monitoring by requiring financial institutions to report on foreign exchange positions held by currency dealers effective through September, according to newswires. Noda also reportedly said speculative trading in the foreign exchange markets is suspected in the yen's recent rise.

The bigger story out of Japan was the downgrade of its credit rating by Moody's. The news knocked back stocks in Japan, but the JPY was not marginally affected overnight.

From Reuters: Moody's Investors Service cut its rating on Japan's government debt by one notch to Aa3 on Wednesday ahead of the Tokyo open, blaming large budget deficits and a buildup of debt since the 2009 global recession.

Tom Byrne, Moody's senior vice president and regional credit officer, said the agency had no plans to alter sovereign ratings for Japan in the next 12-18 months, adding that he saw no change in Japan's home-biased funding dynamics.

Moody's had warned in May that it might downgrade Japan's Aa2 rating due to heightened concerns about its faltering growth prospects and a weak policy response to deal

Nick Nasad
Chief Market Analyst