- The dollar traded mixed on Monday as risk aversion rose. London trading was closed for a bank holiday, reducing trade volumes. Equity markets fell across the globe, taking their cues from a 7% equity plunge in China. The S&P 500 fell 8.31 points to 1,020.61. The yen rose against its counterparts, boosted by a landslide win by the opposition Democratic Party in Japan as well as diminishing risk appetite. The Chicago business barometer climbed more than forecast in August, adding to signs the US economy is recovering. The euro rose as eurozone consumer prices declined less than expected. Sterling gained modestly as a Hometrack report showed UK home prices rose for the first time since 2007. The Canadian dollar declined as crude oil fell below $70 and Canada's Q2 GDP contracted more than expected. The Australian dollar rose ahead of the Reserve Bank of Australia interest-rate meeting. The RBA will keep its key interest rate at 3.00% and investors will be looking for clues on a tightening bias.
- The USD/JPY fell after the DPJ crushed the LDP for over half a century. In an ironic twist, the leader of the DPJ and likely next PM Yukio Hatoyama is the grandson of the founder of the LDP and its first PM. The DPJ is more consumer-oriented than the big business-oriented LDP and may be less worried about an appreciating yen and rising interest rates as a stronger yen may benefit consumers in terms of lower prices on goods and higher yields benefit Japan's saving prone population. The DPJ may also give the Bank of Japan more independence. The USD/JPY broke the support from the uptrend and will likely test the 92-90 area support.
Financial and Economic News and Comments
US & Canada
- The Chicago business barometer grew more than expected to 50.0 in August, the highest reading since September 2008, from 43.4 in July, indicating US business activity expanded this month, according to the Chicago Report by Kingsbury International, Ltd. and the Institute for Supply Management - Chicago, Inc. The production index climbed to 52.9 in August from 43.3 in July. The new orders index rose to 52.5, the highest level in a year, from July's 48.0. The employment index improved to 38.7 from 35.3. The prices paid index jumped to 50.0 from 35.0.
- Canada's GDP fell at a 3.4% q/q annualized rate in Q2 2009, more than expected, after a revised record 6.1% q/q annualized drop in Q1, GDP data from Statistics Canada showed. The GDP was up a slightly more-thanexpected 0.1% m/m in June, the first increase in 11 months, after a 0.5% m/m decline in May.
- Eurozone consumer prices declined a slightly less-than-expected 0.2% y/y in August after a record 0.7% y/y drop in July, according to CPI estimate from Eurostat.
- The Nomura/JMMA PMI rose to 53.6 in August from 50.4 in July, indicating Japan's manufacturing activity expanded for a second consecutive month, data released by Markit Economics showed.
- Japan's industrial production increased a more-than-expected 1.9% m/m in July, the slowest pace in four months, after a 2.3% m/m rise in June, according to preliminary July IP data released by the Ministry of Economy, Trade and Industry (METI). The July IP index stood at 82.4. July industrial production fell 22.9% y/y, following June's 23.5% y/y drop.
- Japanese retail sales declined a less-than-expected 2.5% y/y in July, an 11th consecutive drop, after a revised 2.9% y/y slide in June, figures from the METI showed, extending the longest losing streak since 2003. Large retailers’ sales fell a less-than-expected 7.0% y/y in July, after a revised 6.8% y/y fall in June.
- Japan’s labor cash earnings fell a less-than-expected 4.8% y/y in July, slowing the pace of decline following June’s record 7.0% y/y drop, according to the Ministry of Health, Labour and Welfare.
- Japanese housing starts fell for an eighth consecutive month in July, falling a more-than-expected 32.1% y/y, after a 32.4% y/y decrease in June, figures from the Ministry of Land, Infrastructure and Transport showed. Construction orders dropped for a ninth straight month in July, dropping 42.8% y/y to ¥660.9 billion ($7.1 billion), following June’s 28.0% y/y fall.
- Australian new home sales increased 0.1% m/m in July after rising 0.5% m/m in June, the Housing Industry Association reported.
- Australia’s private sector credit rose 0.2% m/m in July after a 0.1% m/m increase June, data from the Reserve Bank of Australia showed. July private sector credit grew 3.0% y/y.
- Australia’s company gross operating profits fell a more-than-expected 7.8% q/q in Q2 2009, the largest fall since 2003, to a seasonally adjusted A$49.70 billion, figures from the Australian Bureau of Statistics showed. Wages and salaries declined 1.1% q/q in Q2.
- Australian consumer prices rose 1.7% y/y in August after rising 1.9% y/y in July, below the Reserve Bank of Australia’s target range for a fourth month, according to CPI data from TD Securities Ltd. and the Melbourne Institute. Consumer prices were unchanged m/m in August after a 0.9% m/m advance in July.
FX Strategy Update