Market Review – 08/09/2010 22:48 GMTEuro recovers as European debt sales ease risk aversion
The single currency rose against the greenback on Wednesday, as improved demand for Portuguese and Polish bonds eased recent concerns over the European debt crisis. The Japanese yen also retreated from a fresh 15-year high against the greenback as the successful bond auctions eased risk aversion.
The single currency was supported by solid Portuguese and Polish bond auctions, as Portugal sold 661 million euros of bonds maturing in September 2013 with average yield of 4.086%, higher than 3.597% at the last offer. The offer produced a bid-to-cover ratio of 1.9, down from previous reading of 2.4. It also sold 379 million euros of Treasury bonds maturing in April 2021 with average yield of 5.973%, higher than 5.312% at the previous offer. Poland sold all 600 million zlotys of five-year bonds on Wednesday.
The single currency ratcheted higher initially in Asia on short-covering after Tuesday’s selloff to 1.2677 and climbed to 1.2734 in Europe. Later, although euro fell below said 1.2677 low, buying interest at 1.2659 lifted euro higher to 1.2764 in NY on short-squeeze due to the strength in U.S. and European equities. DJI closed the day up by 46 points or 0.45% at 10387, while European equities pared all of their early losses as FTSE-100, CAC-40 and DAX eventually rose by 0.41%, 0.92% and 0.76% respectively. Eur/chf also recovered from its fresh record low of 1.2765.
In addition, ECB’s Weber said he feared of double-dip recession and financial markets still characterised by high level of uncertainty and not safe from setbacks. Weber said he generally welcomed and supported plans of German government.
On data front, German industrial production rose by 0.1% in July, much weaker than the economists’ forecast of 1.0% increase.
Although the greenback fell initially against the Japanese yen in Asia and dropped below Tuesday’s low of 83.51 to a fresh 15-year low of 83.34, the greenback staged a strong rebound from there and gained to 83.96 in Europe. Later, the dollar rose again on short-covering after minor retreat and climbed to an intra-day high of 84.05 in NY before trading narrowly.
In other news, the U.S. Federal Reserve stated in its Beige Book that ‘widespread signs’ signaled that economic growth had eased in the six weeks through the end of August and suggested the recovery was faltering along the East Coast and the Midwest.
Earlier in Asian morning, Japanese Finance Minister Noda said ‘he is prepared to take decisive steps on currencies if necessary and the government is watching markets closely’. He also said earlier in his testimony that ‘the government’s measures to counter the yen’s rise include intervention in markets’.
The British pound edged higher from 1.5344 in Asia due to the news that Vodafone had sold its 3.2% stake in China Mobile following Tuesday’s weakness to a 1-month low of 1.5296. Vodafone said that 70% of the net proceeds would go to its shareholders via a buy back, adding speculation of some demand for sterling. Cross buying in sterling versus euro supported the British pound, as eur/gbp dropped from 0.8271 to 0.8202. Later, cable rose to 1.5495 after the release of better-than-expected U.K. Halifax house price index and climbed to an intra-day high of 1.5534 in NY before retreating.
U.K. Halifax house price index rose by 0.2% m/m and 4.6% 3Mths/year in August versus the expectations of -0.5% m/m and 4.4% 3Mths/year respectively. Halifax economist Martin Ellis said gains in the last two months had reversed the price falls reported between April and June, leaving prices at a similar level to where they were at the end of 2009 and that activity has also been static so far this year.
Bank of Canada raised its interest rates by 0.25% to 1% as expected, however, it warned a weak U.S. economy would hamper Canada’s economic growth. Usd/cad tumbled from 1.0509 to 1.0346.
Economic data to be released on Thursday include:
Australia Employment change, Unemployment rate, Japan Consumer confidence, Germany CPI final, HICP final, EU ECB’s Monthly Report, U.K. Trade balance (gbp), BOE rate decision, BOE Asset Purchase Target, U.S. Trade balance (usd), Jobless claims, Canada Housing starts, Trade balance (cad), Exports, Imports, New housing price index.