After a fairly poor week in terms of sentiment, risk trends favoured a return to US equities overnight, driven by stronger than expected third-quarter earnings from Goldman Sachs among others. Given the dour expectations leading into reporting season, a series of upside surprises has breathed new life into equity markets with the S&P500 rising 0.88 percent on the day.
Spanish bailout hopes continued to underpin Euro gains amid new reports suggesting Germany is open to the idea of providing Spain with a precautionary line of credit, funded by the Europe’s ESM. Although it’s believed the reports were taken out of context, markets still have high expectations surrounding Spain’s eventual request for a bailout needed to unlock the ECB’s bond buying program.
Investors have also come to grips there may be a longer wait for talks between Greece and the Troika to yield a result concerning budget cuts. Despite last week’s call by Spanish PM Antonis Samaras that the impasse on budget reform will be bridged before Thursday’s summit, Finance Minister Yannis Stournaras said they are unlikely to strike a deal before the meeting. “Negotiations will continue until the EU summit and after it.” Greece is trying to find an additional EUR13.5 billion in cuts and it’s expected without the next 31.5 billion euro bailout instalment the country will run out of funds by November. Nevertheless, prospects of a Spanish bailout kept a steady flow of bidders to the Euro which rose to weekly highs against the greenback and forged monthly highs against sterling and over 3-month highs against the out-of-form CAD.
Meanwhile, The CAD failed to rally alongside risk currency counterparts after Monday‘s dovish comments from Bank of Canada Governor Mark Carney who said “elevated global uncertainty is holding back global economic growth and, thus, the demand for Canadian exports. In addition, there is some evidence that global uncertainty is affecting domestic activity.” In recent times we’ve seen markets begin to price in less accomodative policy; however we’ve seen a paring back of expectations despite what appears to be tentative signs of stronger growth in the US. Markets now expected the central bank to downgrade growth prospects in next week’s Monetary Policy Report.
The Kiwi weakened after yesterday’s CPI print which showed inflation remains subdued well below the RBNZ’s official target. Although it doesn’t necessarily imply the bank will cut interest rates, it clear the bank has the scope to hold rates steady at 2.5 percent for longer. Third-quarter Consumer Prices grew at a yearly pace of 0.8 percent according to the latest data, down from first-quarter growth of 1-percent.
Meanwhile the Australian dollar continued to enjoy a reprieve from a recent spate of selling with positive risk trends providing buoyancy. The A$ got a leg-up after yesterday’s RBA policy meeting minutes and risk trends overnight kept the balance of risk in its favour. The local unit will continue to key off economic feedback from China this week with tomorrows GDP data the next major directive. On balance the Chinese data pulse has been supportive of the Aussie dollar in recent sessions with trade data released over the weekend showing a bounce in export activity. Exports from the region climbed 9.9 percent in September from 2.7 percent in August, while imports return from negative growth to rise 2.4 percent after a 2.6 percent fall in August. China recorded an overall trade surplus of $US27.67 billion in September from a previous $US26.66 billion. Economist’s anticipated a surplus of $US20.54 billion. Greater export growth signals an increase of foreign demand as central Banks from Europe and the US embark on new easing initiatives, while a return to positive import growth is a particularly good sign domestic demand is returning from sub-par levels. The Aussie dollar is currently trading at 102.75 US cents.