Market Review – 06/09/2010 17:38 GMTEuro rises to 3-week high of 1.2920 before retreating on profit-taking
The single currency extended last Friday’s rally to a 3-week high of 1.2920 before retreating to 1.2867 on profit-taking as European finance ministers gathered on Monday in Brussels for several days this week and they studied ways to charge a levy on banks and a tax on financial transactions plus other issues not relating to the forex market. The German Banking Association said the 10 biggest German banks may need 105 billion euros (US$ 140.9 billion) of additional capital under new banking rules dubbed Basel III as the Basel Committee will likely require banks to have a Tier 1 capital ratio of 6%. In other news, Spain’s labour minister, Celestino Corbacho said in a national radio that ‘Spain’s unemployment levels will take 3-4 years to recover to pre-crisis levels unless something untoward happens.’
IMF’s chief economist Olivier Blanchard said in a newspaper that ‘growth will likely remain weak both in Europe & U.S.; European government must present credible, medium-term fiscal consolidation plans and U.S. slowdown would have significant but not enormous impact on Asia and currency appreciation is one but only one part of China’s shift in economy structure.’ His view echoed that of the G20 deputy finance ministers’ weekend meeting in S. Korea, John Lipsky, IMF’s first deputy managing director, said to reporters ‘They (deputy FINMINs) are mainly confident that there is a moderate recovery underway globally. He said ‘the world economy is recovering moderately but still faces challenges such as the need for medium-term fiscal consolidation.’
Bank of Japan starts its 2-day rate meeting on Monday, following last week’s emergency meeting. Japanese finance minister, Yoshihiko Noda said on Sat. that Tokyo would take decisive steps to stem the yen’s rise when needed, while suggesting that coordinated currency market intervention was a difficult option. Over in DPJ’s upcoming election news, Prime Minister Kan & Ozawa, his challenger at the Sept 14th DPJ’s presidential election faced off each other again on Sunday at TV debates and exchanged their different views on how to pay for planned policies plus other key issues. According to Kyodo News, latest poll showed on Saturday that nearly 50% of local assembly members who can vote in the upcoming DPJ’s leadership election favoured Kan. Banri Kaieda (an aide to DJP’s kingpin Ichiro Ozawa) said that ‘BOJ not doing enough but BOJ alone cannot end deflation; more JGB buying by BOJ is an issue open for debate; should not rule out option of solo forex intervention and fiscal reform targets needed but existing targets should be reviewed.’ The greenback fell briefly versus the Japanese yen from 84.50 to 84.04 and then traded sideways in relatively thin European session due to U.S. Labor Day holiday.
UK Telegraph reported Reed Jobs Index showed a drop in the number of jobs available in August as compared with July. In addition, a separate survey also indicated 1 in 5 small and medium-sized businesses expected more job losses over the next year, suggesting confidence among British employers is waning. Despite extending last Friday’s rise to 1.5490 in European morning, the British pound tumbled to a session low of 1.5345 on talk of big demand for eur/gbp, which rose from 0.8329 to 0.8390, by a U.K. clearer.
Tuesday will see the release of U.K. BRC retail sales, Australia RBA rate decision, Japan Leading indicators, BOJ rate decision, Swiss jobless rate and Germany factory orders. Investors are also waiting for the Obama’s US$ 50 billion infrastructure plan this week aimed at generating some desperately needed U.S. job growth and limiting predicted Democratic losses in Nov. 2 congressional elections.