Daily market report Dollar at Month Low, U.S shut-down to come - Soft CPI Data May Set Dovish Tone for ECB Bets, Compound Euro Selling - U.K. House Prices Surge Most Since 2007 as Demand Increases The dollar dropped to a one-month low against the yen as political wrangling over the budget threatened a U.S. government shutdown from tomorrow. The U.S. currency extended its first quarterly drop versus the yen since a year ago with Congress deadlocked over Republicans’ insistence on delaying the 2010 health-care law. In the US, worries about a looming government shutdown are reaching fever pitch after the Republican-controlled House of Representatives passed a measure that linked funding through mid-December to a delay on implementing the Affordable Care Act, commonly referred to as “Obamacare”. That trade-off is likely to be rejected in the Democrat-controlled Senate, meaning that passing a budget by the October 1 deadline looks unlikely. Presumably, the markets view a possible shutdown in terms of its negative implications for market stability and the negative global growth implications of sudden fiscal retrenchment in the world’s largest economy. What this means for the US Dollar US Dollar is unclear however. On one hand, similar instances in the past (most notably, when Standard and Poor’s stripped the US’ AAA credit rating in 2011) saw the greenback rally on haven demand. On the other, the negative implications of a shutdown on US growth may mean the Fed will maintain QE as-is longer than expected, a negative driver for the reserve currency.. In Italy, embattled former Prime Minister Silvio Berlusconi attempted to shatter the ruling coalition over the weekend when he ordered cabinet ministers belonging to his PdL party to resign. That would create a power vacuum in the largest of those Eurozone countries that have been at the front line of the region’s debt crisis of recent years, with potentially dire consequences. Indeed, the Euro yielded the worst performance among the G10 FX majors in Asia. More of the same appears likely ahead. The Germany-Italy 10-year bond yield spread has jumped to a two-month high, hinting the single currency remains vulnerable amid swelling funding stress. On the data front, the flash estimate of September’s Eurozone CPI reading is expected to put the headline year-on-year inflation rate at 1.2 percent, the lowest in five months. That may drive expectations of a dovish turn at this week’s ECB meeting, compounding Euro selling pressure. U.K. house prices rose the most in more than six years this month amid a continued increase in demand that’s being partly driven by government measures. Average values in England and Wales rose 0.5 percent, the most since May 2007, after a 0.4 percent gain in August, London-based property researcher Hometrack said in a statement today. Annual price inflation accelerated to 2.4 percent. Prime Minister David Cameron defied critics of “Help to Buy” yesterday, saying the second phase of the plan aimed at helping prospective buyers will start next week, three months earlier than planned. The program has drawn criticism that it may help fuel a property bubble and the government said last week the Bank of England will perform annual checks.
Posted on: Mon, 30 Sep 2013 08:21:25 +0000
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