Market Review – 13/09/2010 22:49 GMTEuro rallies as robust Chinese economic data and bank-regulation timeline boost risk appetite
Euro surged against the greenback on Monday, as upbeat Chinese economic data and new global banking rules boosted investors’ risk appetites.
The single currency jumped from 1.2680 in NZ as Sunday’s release of the Basel III bank capital rule which allowed banks up to 8 years (more time than expected) to raise its capital together with Saturday’s release of stronger-than-expected Chinese industrial production (+13.9%, higher than the forecast of 13.0% and the previous reading of 13.4%) data boosted appetites for riskier assets, and then rallied to 1.2835 in Europe. Later, euro rose again after the comments from ECB’s Trichet and climbed to an intra-day high of 1.2893 in NY on cross buying in euro especially versus sterling (eur/gbp rallied from 0.8269 to 0.8359).
ECB’s Trichet said what was decided on Basel III would not hamper global recovery but would increase system’s resilience. Trichet said the transition allowed new standards while supporting recovery as Basel III eliminated uncertainty. Trichet added he had full confidence that U.S. would implement standards decided together.
Earlier, ECB’s Governing Council member and head of the Basel Committee on Banking Supervision Nout Wellink said banks would need hundreds of billions of euros of extra capital following an agreement of tougher capital rules.
On data front, EU Commission forecasted 2010 eurozone and German GDP growth at 1.7% and 3.4% versus the previous expectations of 0.9% and 1.2% respectively. EU Commission forecasted German inflation at 1.1% versus 1.3% previously.
Although the greenback rose to 84.43 against the Japanese yen in NZ on broad-based selling of yen in reaction to robust Chinese economic data on Saturday together with the Basel III banking rules which allowed banks up to 8 years to raise its capital, dollar pared its gain on profit-taking and tumbled to 83.50 in NY on dollar’s broad-based weakness before stabilising.
The U.S. posted a $90.53 billion budget deficit in August versus the economists’ consensus of $95 billion and smaller than the $103.56 billion budget gap a year ago.
Investors are focusing on DPJ leadership contest between Prime Minister Naoto Kan and kingpin Ichiro Ozawa on Tuesday.
Although the British pound surged from 1.5351 in tandem with euro and extended its rally to 1.5488 in European morning due to the Basel III bank rules, cable retreated from there to 1.5389 on active cross selling in sterling versus euro in late reaction that a trade union leader said on Sunday that large scale strikes against the British coalition government’s plans to slash public spending were inevitable. Later, despite cable’s recovery to 1.5466 in NY, the pound retreated on profit-taking and dropped to 1.5405 in NY afternoon.
Earlier, M&A demand gave support to the cable as global defense giant BAE Systems PLC had put parts of its North American commercial aerospace business up for sale in an auction that could fetch up to US$2 billion (1.3 billion pounds).
In other news, Reuters reported that British businesses believed UK could be heading for a double-dip recession according to a survey published by accountants & businesses advisors BDO LLP. The survey showed optimism among businesses in Aug had dropped to 93.1 from 95.5 in July. The latest index represented the lowest since the recession period between November 2008 and July 2009.
Economic data to be released on Tuesday include:
New Zealand Retail sales, Australia NAB business confidence, Japan Capacity utilisation, Industrial prod’n, U.K. N’wide Consumer Confi., RICS house prices, DCLG house prices, CPI, CPI core, RPI, RPI – X, Germany WPI, ZEW index, EU Industrial prod’n, Labour cost, ZEW survey, U.S. Retail sales, Retail sales less auto, Canada Capacity utilisation, Business inventories.