Dollar firmer overnightU.K. CPI & RPI numbers were released for September:
Forecast Actual
CPI (MoM) +0.3% +0.1%
CPI (YoY) +1.9% +1.8%
CPI Core (YoY) +1.8% +1.5%
RPI (MoM) +0.4% +0.3%
RPI (YoY) +4.0% +3.9%
RPI Core (YoY) +2.8% +2.8%
The numbers are slightly better than forecast and will be welcomed by the BOE which will now be granted more time before making the next rate decision. The CB is more likely to prefer retaining an unchanged policy to observe the markets’ and consumers’ reactions to the current level of rates and how the Northern Rock turmoil progresses now that it has three suitors ready to bail out the mortgage lender although at the expense of the shareholders it has been reported.
Following the benign numbers from the individual countries the Euro-zone CPI as a whole came in right on forecast at +0.4% MoM and +2.1% YoY in September. However, core inflation managed to dip down slightly to +1.8% and maintains the status quo for now but already calls are being made to tighten the interest rate screws once again.
One of the more important numbers of the day came from Germany where the October ZEW survey reported the headline economic sentiment index at -18.1. This is better than the 22.3 forecast. The current situation index was close to expectations at 70.2 which is down 2.2 from September. The ZEW in its statement said “the almost unchanged economic expectations indicate that the most pressing downward corrections following the crisis on the financial markets seems to have come to an end.”
The improvement in Germany’s number provided the way for the Euro-zone ZEW Survey economic sentiment to come in 6 points better forecast at -19. The recent industrial production numbers along with the higher revisions for July are beginning to push the ECB towards a further tightening with the question more “when” rather than “if”.
Over in the States a couple of figures which were close enough to forecasts to have limited impact with the weekend’s G7 meeting now looming. September Industrial Production was in line with forecasts at +0.1% MoM and Capacity Utilization at 82.1%. Note that Q3 industrial output was at 4.0%, higher than Q2 at 3.5% and the strongest pace since Q3 2006. More and more we are seeing numbers pointing to the fact that the FED’s forecasts of a H2 recovery in the underlying economy were correct and the biggest drag still remains the housing problems.
And the housing problems clearly aren’t going to go away quickly with even Bernanke saying it will cause a significant drag on growth for the whole of next year. The October NAHB home builder sentiment also dropped to +18.0 which is the lowest level since January 1985.
The NAHB commented, “Many prospective buyers may very well have unrealistic expectations regarding new home prices as well as how much they can expect to receive for their existing homes. When the market is in proper balance, people can recognize a good deal when it comes along; at this point, they view a good deal as a moving target.”
All this left the Dollar going nowhere after the expected recovery in the Dollar in early Europe. It does seem as if the market requires something to stimulate the next move with now conflicting views on what the upcoming G7 meeting will produce. Incentive to push the Dollar in either direction is clearly lacking and there doesn’t seem to be much on the release calendar today to provide any catalyst.
Technically the Euro, Swissie and Dollar-Yen all found barriers at levels outlined yesterday and for the moment this should provide a pullback lower in the Dollar. If we are to see anything more than a pullback then there needs be new input.
Looking at the possible areas we have Rato’s statement that the Dollar is over-valued, growing pressure on the ECB to hike rates and the growing perception that more cuts from the Fed are not going to be quickly forthcoming – if at all. It’s a mixed bag.
I prefer a weak Dollar against Europe and a stronger Dollar versus the yen.
More later when the analysis is complete.
The following economic releases are due today from Asia.
Australian August Westpac Leading Index
Japan – August
Tertiary Industry Index (MoM) +1.0%
Leading Economic Index 27.3%
Coincident Index 85.0%
Japan – September – Machine Tool Orders
See Also