Intraday Market Thoughts

Draghi Open to Rate Cut, China CPI Next

by Adam Button
Nov 8, 2012 23:28

ECB President Mario Draghi hinted he was open to a rate cut in 2013 but said he was done helping Greece at the post-meeting press conference. Sentiment continued to worsen with the S&P 500 falling below the 200-day moving average and the yen rallying. The focus shifts to China with CPI and industrial production on tap. 1 of 2 EURUSD Premium Insights hit all targets, while oil long stopped out. See more details below.

Draghi did not reveal any surprises after leaving rates on hold once again but signaled an openness to lower the main refi rate in early 2013. He said he stands ready to act with standard monetary policy and that growth momentum will be weak in 2013. On Greece, he said no help was forthcoming but a Dow Jones source said a further haircut of Greek debt was on the table. On Spain he said no help will come until there is an official request.

The euro hardly moved in US trading. It bounced around 1.2740 as the stock market fell for a second day. The S&P 500 fell to a five-week low and broke the 200-day moving average for the first time since June. The market fell late in the day after S&P said there is a 15% chance the fiscal cliff pushes the US over the edge.

For the second day, the foreign exchange market was surprisingly insensitive to falling stocks. The Australian dollar even rallied in the early part of the US afternoon before slipping back to 1.04.

The worries about US politics and growth have put the shine back in gold, which has gained $60 this week after falling $40 on Friday.

Asia-Pacific trading will be busy with China continuing its once-in-a-decade political changeover. The early highlight is the RBA statement on monetary policy at 0030 GMT. Its not the RBA decision but will contain some insight about the potential for a rate cut in December.

At 0130 GMT, China releases CPI with no change from the 1.9% y/y rate expected. At 0530 GMT, China releases industrial production and retail sales. Production is the more important release and is expected up 9.4% y/y.

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