by Darrell Jobman, Editor-in-Chief, TraderPlanet.com
DailyCommentary for Friday, October 3, 2008
The Euro was unable to make any significant headway in European trading on Friday as it remained under pressure on the crosses. The US currency was also still being supported by very tight money markets with dollar Libor over the 4% level.
The House of Representatives approved the amended financial rescue bill and it will be signed into law very quickly. There should be some initial improvement in risk appetite and any Euro support on the crosses could weaken the dollar to some extent, although the impact is liable to be limited.
The US employment data remained weak with non-farm payrolls declining by a further 159,000 in September. This was the ninth successive decline in employment and the steepest monthly fall since 2003. The unemployment rate held steady at 6.1% as people withdrew from the labour market while there as a decline in weekly hours.
The data will reinforce fears over a further deterioration in the economy, although the impact should be measured. The ISM index for the services sector weakened to 50.2 in September from 50.6 previously, although this was slightly higher than expected and there will also be relief that the decline was not more severe following the sharp manufacturing-sector decline.
Some Fed officials have been keen to reject the possibility that further interest rate cuts are required, but there will be further speculation over a reduction within the next few weeks. Chairman Bernanke also stated that the Fed would do all that it could to contain the crisis which will fuel expectations over lower rates.
Confidence in the Euro-zone remained weaker with strong expectations of lower interest rates and the Euro was unable to push back above 1.3850 from lows near 1.37.
Market sentiment remained very cautious in Asian trading on Friday with regional stock markets falling as the Nikkei index dipped to a 3-year low. There will certainly be major fears over the Japanese economy, but the global risks are liable to dominate as recession fears mount.
The yen failed to secure any fresh gains on the US payroll report with the dollar finding support on dips to 104.50.
The US approval of the financial rescue package will tend to improve risk appetite to some extent, but there will continue to be fears over the underlying credit outlook which will limit selling pressure on the Japanese currency. It held close to 105.25 against the dollar as Wall Street surrendered early gains.
The UK currency edged stronger in European trading on Friday, but struggled to sustain the gains as underlying sentiment remained very negative.
The PMI index for the services sector fell sharply to 46.0 in September from 49.2 the previous month which was the sharpest ever monthly decline and will reinforce fears over a sharp deterioration in the economy. There was also a negative figure for equity withdrawal as loans were repaid.
There will be strong pressure on the Bank of England to move quickly towards an interest-rate cut with much increased speculation that there will be a reduction next week.
Sentiment was boosted by the Bank of England’s decision to boost market liquidity by accepting a wider range of collateral at the money-market auctions. Sterling pushed to a six-month high against the Euro near 0.7760 before a correction and also found support below 1.76 against the dollar.
The Swiss franc continued to find support close to 1.14 against the dollar on Friday and strengthened to highs around 1.1260. The Swiss currency also secured good support on the crosses and pushed to test levels beyond 1.56 against the Euro.
The franc held relatively firm even though there was some degree of improvement in risk appetite, but any easing of fears should still lessen underlying support for the currency.
Consumer prices rose 0.1% in September and the 2.9% annual rate was above expectations with the core rate at a 12-year high. The National Bank will, therefore, be uneasy over inflation trends which will provide some franc support.
The Australian dollar remained on the defensive during Asian trading on Friday as economic fears persisted with a test of support below the 0.77 level. The domestic data recorded a recovery in the services-sector PMI index, although it remained well below the 50.0 level.
There will be further expectations that the Reserve Bank will cut interest rates next week.Fears over the global growth outlook will also tend to undermine the currency.
The US currency retreated from its best levels and the Australian dollar pushed back to around 0.7750 in New York trading, although underlying sentiment was still very fragile.