Intraday Market Thoughts

Germany Tempers Expectations, China Q3 GDP Next

by Adam Button
Oct 18, 2011 1:07

German leaders aimed to lighten the weight of expectations ahead of next weeks EU summit but the euro sank of the non-confident musings. The yen led the FX market while the commodity currencies lagged. Key Chinese economic numbers and the RBA minutes highlight the upcoming session. Latest Premium Trades still working for EURUSD, EURJPY, EURGBP and silver.

European leaders, as if suddenly grasping the consequences of pledges made a week ago, aimed to scale back hopes of a decisive solution to the Eurozone crisis at the Oct. 23 EU summit.

A Merkel spokesman said an agreement will be reached on package of measures but that dreams everything will be resolved will not be fulfilled. Fin Min Schauble added that a permanent solution to the debt crisis is unlikely to come out of the summit.

The effect was a reversal of virtually all of the optimistic market moves from Friday. Technically, a number of outside reversals have appeared on the daily charts. Notably in EUR/USD, USD/CAD and the S&P 500.

Other economic news was mixed as the US Empire state manufacturing index climbed to -8.5 from -8.8 but fell short of the -4 consensus. Industrial production was in line with estimates at +0.2%.

A portion of the market is focused on corporate earnings and softness at Wells Fargo and, after the US close, IBM.

Earnings, economic data and news from Europe will continue to vie for the markets attention for the remainder of the week but most important story will continue to be the European crisis. The market continues to hold lofty expectations for the remaining two weeks of the month and any hints that they will be unfulfilled are a major risk.

Chinese Data and RBA Minutes Upcoming

China will release Q3 GDP at 0200 GMT as well as industrial production and retail sales. Growth of 9.3% y/y is expected. The consensus for industrial production is +13.3% but given the soft import and export numbers last week, we see the risk of disappointment. Retail sales are forecast to rise 17.1% y/y. The GDP data is likely to grab headlines but AUD will be equally vulnerable to industrial production while retail sales will generally be an afterthought.

Much earlier, at 2030, the RBA releases the minutes of the Oct. 4 meeting where rates were left unchanged. The board shifted toward a more dovish stance at the meeting but fell well short of foreshadowing rate cuts before the end of the year. At the moment, officials want to wait and see how the global economy evolves.

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