Investors had expected a relatively uneventful trading session into the Euro Summit this weekend. This was not to be, the dollar had a Ã¢â‚¬ËœwobblyÃ¢â‚¬â„¢, printed WWII record lows against the yen that was triggered by the execution of exotic auction barriers and the running of a plethora of dollar stop-losses across the major currency pairs. A mix of speculation that European leaders are moving closer to an agreement to contain its sovereign debt crisis has tentative Ã¢â‚¬Å“riskÃ¢â‚¬Â being applied and the big dollar ending the week on the back foot. When does the ending of the euphoric headache begin? Maybe itÃ¢â‚¬â„¢s after the second summit?
Below are some highlights of the week:
- FED: Chicago Fed President Evans (most dovish of the committee) stated this week that the US economy is in a Ã¢â‚¬Å“liquidity trap and faces massive shortfalls in output and employmentÃ¢â‚¬Â. He suggests that the Fed communicate an explicit target Ã¢â‚¬â€œ Ã¢â‚¬Å“either the jobless rate falls below +7% or inflation outlook rises above +3%Ã¢â‚¬Â – and keep target rates low and/or embark on more QE until the objectives are clearly met.
- USD: IP advanced +0.2%, bang on market expectations, despite the net revisions being marginally negative at -0.1%. August was revised down from +0.2% to unchanged, while July was revised higher by +0.2% to +1.1%. The negative print came from June retreating -0.1%. Analysts use this to explain why capacity utilization fell short of consensus at +77.5% by -0.1%.
- USD: Empire State Manufacturing Index contracted this month (-8.5) at a faster pace than forecasted (-3.9), reflecting a lack of confidence in the recovery, even as measures of orders and sales improved.
- USD: The surge in PPI (+0.8%) almost entirely reflected higher energy compared to August. Strip out the most volatile components and the core increased by just +0.2%, m/m, with the annual rate steady at +2.5%. This would suggest relatively contained inflationary pressures. This would suggest relatively contained inflationary pressures. The release should have no influence on the FedÃ¢â‚¬â„¢s monetary policy. Capital markets and the Fed are honing in on growth indicators.
- USD: The TICS report was strong at +$57.9b, led by +$69.7b foreign buying of Treasuries. It seems that investors stepped up to the plate once the debt ceiling standoff was resolved. It was interesting to see that China was a net seller of treasuries in August.
- USD: US housing data crushed market expectations for September, jumping +15%, to its highest level in 17-months as a surge in apartment and condo construction boosted the ailing housing sector. The seasonally adjusted annual rate of +658k beat a forecasted +590k print.
- USD: CPI came in Ã¢â‚¬ËœpiggybackingÃ¢â‚¬â„¢ expectations at +0.3% for September. Even better was the core-print (ex-food and energy) up only +0.1%. In translation, year-over-year, the core now stands at +2%, within the FedÃ¢â‚¬â„¢s comfort zone. Policy makers can now go back to looking at growth indicators, hoping for inspiration.
- CAD: Canadian index of leading indicators fell -0.1% in September, the first decline in a year, led by declines in manufacturing.
- BRL: The Copom (MPC) cut the Selic (O/N lending rate) by -50bp to +11.50%, in line with market consensus. Policy makers blamed the deterioration in global demand conditions as the main culprit.
- CAD: Core (+0.5% and the highest level in three years) and headline inflation (+0.2%) unexpectedly accelerated in September. While inflation has been above the BoC+2% target for 10-months, Governor Carney has said he has Ã¢â‚¬Å“considerable flexibilityÃ¢â‚¬Â in how fast inflation returns to the bankÃ¢â‚¬â„¢s desired rate.
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