by Darrell Jobman, Editor-in-Chief, TraderPlanet.com
Commentaryfor Wednesday, September 10, 2008
US financial markets remained an important focus after sharp falls on Wall Street during Tuesday. Investment bankLehman Brothers reported higher than expected losses for the latest quarter and announced an effective break up. The results maintained the underlying lack of confidence and put carry trades on the defensive which helped underpin the dollar. The US currency was also underpinned as commodity prices remained on the defensive.
There were no significant US data releases on Wednesday. The latest jobless claims data will be watched closely on Thursday as data over the past few weeks has continued to suggest an underlying deterioration in the labour market. The retail sales data will also be important for sentiment on Friday.
The European Commission cut its 2008 GDP growth forecasts for the Euro-zone and suggested that the 2009 forecasts would be lowered. There were also reports that the IMF had cut its growth forecasts and had warned over German recession risks.
The latest French industrial production data was stronger than expected which provided some relief, but he Euro was unsettled by comments from EuroGroup head Juncker that the Euro was still overvalued and it dipped again late in US trading.
The yen retained a firm tone in Asian trading on Wednesday, although it failed to break major technical levels. The domestic economic data recorded a 17% decline in the current account surplus for July while wholesale prices remained at a 27-year high, but international trends will tend to remain dominant.
The North Korean developments will be monitored and could have a yen impact, although the volatility in global markets should be the key influence. The Euro found further support on dips towards the 150.0 level against the yen with some technical pressure for a correction after sharp losses this month.
Volatility remained a key feature surrounding the domestic and US financial markets. The yen strengthened after the worse than expected results from Lehman, but struggled to sustain the gains and weakened back to 107.60 against the dollar.
The economic data has provided no support for the UK currency over the past 24 hours. The NIESR estimated that UK GDP declined 0.2% in the three months to August, reinforcing recession expectations, while confidence in the commercial property sector also deteriorated further according to a latest industry survey. Sterling was still able to resist further aggressive selling with some pressure for a technical correction stronger.
The UK visible trade deficit was GBP7.7bn in July from an upwardly-revised GBP8.0bn the previous month which will cause some concerns as the oil deficit widened. This will tend to be a negative Sterling factor, although the focus will be on growth and interest ratetrends.
The comments from Bank of England officials on Thursday in testimony to the Treasury Select Committee will be extremely important for Sterling sentiment. There will be a variety of opinions and the remarks from Bank of England governor will be critical for sentiment. Any suggestion of a near-term interest rate cut would tend to put renewed downward pressure on the UK currency.
Swiss franc failed to make a challenge on levels near 1.12 against the dollar on Wednesday and tested levels above 1.1350 in New York. The franc retained a firm tone against the Euro near 1.59.
The franc gained some defensive support from fears over the global financial sector, especially after the Lehman results with the franc moves strongly correlated with global stock market moves.
There were no major comments on monetary policy from National Bank officials during remarks on Wednesday with a concentration on tightening banking standards, although officials confirmed that growth would slow.
The Australian dollar remained under pressure in local trading on Wednesday following the drop in commodity prices and a sharp decline on Wall Street. The currency found support below the 0.80 level, but was unable to push above 0.81 as rallies continued to attract selling interest.
The domestic data recorded a recovery in consumer confidence, but the global influences remained dominant.
A renewed decline in oil prices and higher risk aversion kept the Australian currency on the defensive, although it resisted a further decline to below 0.80. Volatility levels are liable to remain at an elevated level in the short term.