Last week, the dollar movement was hampered by the threat of a historical debt default and the lack of clarity over when the Federal Reserve will scale back its 85 Billion quantitative easing programs. Investors are now focused on the Federal Reserve Bank meetings in October 29-30 and December 17-18. Although some suspect the Federal Reserve would not start its tapering process until early 2014 .Chicago Federal Reserve President Evans ,said that the third quarter GDP data that is due to come out on Oct 30th would give more insight on the timing of the FED’s tapering .
The US House of Representatives refused to give in to President Barack Obama’s demand for straightforward bills to run the government beyond Oct 1 and avoid a debt default that could threaten a fragile economic recovery. The US debt is at a new record high of 16.7 Trillion dollars. Treasury Secretary Jacob Lew calculated that the United States would run out of money by October 17 and would have less than $30bn cash in hand if Congress fails to pass its spending bill.
We had mixed economic indicators in the US, the consumer confidence index fell slightly. However, the manufacturing sector continued to perform strongly, and the Jobless Claims dropped to its lowest level since 2008, suggesting that US economic activity has been expanding at a moderate pace.
In Europe, the ECB president Mario Dragi told the European Parliament that he is ready to issue another Long Term Refinancing Operation if needed to maintain a low interest rates environment. In addition, Germany, Europe’s largest economy, had positive economic indicators especially in the business, manufacturing and consumer confidence sector.
More news that is positive came out of the Far East with the Chinese manufacturing index rising to a six-month high and Japanese exports rising 14.7 percent year on year. Also in Japan, August headline CPI came in stronger than expected, rising to 0.9 percent y/y from the 0.7 percent pace in July suggesting that the Bank of Japan easing program is helping Japan move out of the deflationary conditions.
The EUR/USD, traded in a tight range of 1.3460-1.3564 ahead of the ECB’s rate decision due next week, also the AUD/USD, followed suit trading in a tight range of 0.9295-0.9460 ahead of RBA’s rate decision early next week.
US Treasury yields neared the 2.6 percent mark as investors moved to a safe haven as both the debt ceiling and the Fed Reserves tapering plan encouraged buyers.
The US consumer conference Board, said its index of consumer attitudes fell to 79.7 from a revised 81.8 in August, slightly missing market expectation of 79.9.The drop in the confidence index was due to the resurfacing of concerns over jobs and earnings. Consumers’ assessment of current business and labor market conditions, however, was more positive. While overall economic conditions appear to have moderately improved, consumers are uncertain whether the momentum can be sustained in the months ahead.
US Durable Orders Improve
US manufactured goods moved higher in August, signaling that the factory sector improved in the third quarter. Durable goods orders rose 0.1 percent during last month, after a large 7.4 percent dropped in July mostly because demand for aircrafts fell. The durable orders report showed that shipments of non-military capital goods other than aircraft grew 1.3 percent, snapping two straight months of declines.
Europe
German Ifo Business Climate
German business confidence increased for its 5th straight month in September amid signs the economic recovery is continuing in the Euro Zone. The Ifo business climate index is based on a survey of 7,000 companies about how they think the situation is now, and how they see things going in the coming months. The index edged up to 107.7 points from 107.6 in August. Market analysts had expected it to rise slightly more, to 108.0. Germany is benefiting from unemployment near a two-decade low and the end of the Eurozone longest ever recession. The German government is depending on domestic demand to support growth this year as exports weaken. The Ifo survey strengthened those hopes by showing retailers more upbeat about their business outlook than at any point since February 2011.
Germany’s Flash PMI
Germany’s private sector improved in September at its fastest rate since January, last week Germany’s Flash PMI Service index, suggested that Europe’s largest economy will grow again this quarter. The Purchasing Managers’ Index, which tracks growth in both the manufacturing and services sector and covers more than three quarters of the German economy, moved up to 53.8 in September from 53.5 in August.
Mario Draghi Addresses the European Parliament
The ECB President Mario Draghi told the European Parliament in his quarterly testimony “We are ready to use any instrument, including another LTRO if needed, to maintain the short term money markets at the level that is warranted by our assessment of inflation in the medium term.” At the same time, Draghi said the central bank was monitoring the impact of having ultra-low interest rates for a long time, saying the central bank was “very sensitive” to risks to financial stability stemming from low rates, and would act against those risks, if needed.
United Kingdom
Final Gross Domestic Product
The United Kingdom’s economy grew at its strongest pace in three years, supported by one-off tax change, but business investment fell, raising some questions about the recovery’s prospects. GDP Growth between April and June was 0.7 percent compared with the revisions to growth over the past year, it meant that last quarters GDP growth was the strongest quarterly expansion since 2010.
Asian Markets
Growth in China’s factory sector rose to a six-month high in September, supported by stronger foreign and domestic demand. The flash HSBC Purchasing Managers’ Index climbed to 51.2 this month from August’s 50.1, hitting a high not seen since March. The Chinese government has set a growth target of 7.5 percent this year, already the weakest expansion in over two decades.
The Peninsula
