No Respite for U.K.

Dovish comments from Fitch Ratings about the British economy have sparked fears that the nation could lose its coveted “AAA” credit rating. Moreover, dismal manufacturing PMI and mortgage approval figures data just released has poured cold water on the recent optimism surrounding the UK economy. With Friday’s Spanish banking stress test offering some respite, the nation’s reluctance to seek a bailout has continued to erode risk appetite among investors. Further denting the market mood, economic releases from key Asian nations continued to highlight the fragile state of the global economy. Across the Atlantic, ISM manufacturing PMI later today holds market interest, given Friday’s weak Chicago manufacturing PMI.

Pound Sterling – UK Markets

The Pound declined against the US Dollar in the early trading session today, as fears of Britain losing its “AAA” credit rating resurfaced. Although Fitch reaffirmed its “AAA” rating on the UK economy, the rating agency maintained a “Negative” outlook on Britain’s economy, citing fears over high government debt levels and lack lustre growth. However, Sterling has recouped some of its earlier session losses against the greenback. Data just out has revealed a more-than-expected contraction in the UK manufacturing PMI for September. The latest PMI reading has dented market belief that the UK economy would show an improvement in the third quarter. Moreover, the BoE’s mortgage lending data was in contrast to the last week’s mortgage off take data from the BBA. Additionally, earlier today, Hometrack revealed that home prices in the UK declined for September. With major domestic releases out, markets are expected to turn their focus towards economic releases from the US for more clarity.

US Dollar – US Markets

The US Dollar has begun the early weekly session against the majors on a firm footing, as traders continued to fret over the fiscal situation in Spain, boosting appeal of the greenback as a safe haven currency. Moreover, data released earlier morning today revealed that Chinese manufacturing PMI contracted for September, while Japan’s Tankan survey revealed that large manufacturers’ continued to bear the brunt of ailing growth in major global economies. However, the stress tests results showing that stress to the Spanish banking system were within estimated limits outweighed weak economic data from Asia and led the greenback lower against the Euro. Today’s ISM manufacturing data will garner attention, given a mixed picture offered by the recent regional manufacturing indices. Meanwhile, the Fed Chairman, Ben Bernanke’s comments later today are expected to set the stage for minutes of the latest FOMC meeting due on Thursday. This week’s non-farm payrolls data is also keenly eyed and is expected to offer first insights into the impact of the Fed’s latest liquidity injection plan on the domestic labour market. .

Euro – European Markets

The situation at the Spanish banking system appears less grim than earlier envisaged and has led the Euro higher against the majors this morning. The latest stress test revealed that Spanish banks have a capital deficit of €59.3 billion, lower than previous estimates. Moreover, the ECB and the IMF backed the stress test results. Additionally, fears over Greece’s exit from the Eurozone seem to have faded amid reports that Greece would resume its talks with international lenders this week for a bailout, wherein the lenders are expected to provide assistance to Greece despite the nation’s slow progress on reforms. Further lending a helping hand to the Euro, manufacturing PMI readings across Europe were upwardly revised, although the activity continued to show contraction for September. However, dismal economic releases from Asia have kept a tight lid on gains in the Euro against its major counterparts. On the macro front, traders are keeping an eye on the Eurozone’s unemployment rate which is expected to show an uptick for August. Additionally, markets are expected to stay glued on developments in the Eurozone for further direction.

Other Currencies – Highlights

The Swiss Franc is trading flat against the Euro in today’s trading session, as the latest PMI data revealed an accelerated contraction in Swiss manufacturing activity offsetting better-than-expected domestic retail sales data. Following weak manufacturing data, markets are expected to look forward to the industrial production figures slated for release in the latter half of the week for more clarity on the manufacturing front. Swiss foreign currency reserves and KOF’s economic forecasts for the Swiss economy are other indicators to look forward to during the course of the week. With most domestic economic releases out in today’s session, traders are expected to closely monitor events in the Eurozone for further direction, given the Swiss Franc’s peg to the Euro.