Global Economy Still in the Weeds

The fragile state of the global economy prompted the IMF chief, Christine Lagarde, to call upon policy makers to spring into action in order to revive economic growth. She further hinted that the agency would downgrade growth forecasts in its next review. Meanwhile, Spain remains in focus, given the possibility of Moody’s downgrading the nation’s credit rating to “Junk” grade in this week’s review. In the UK, BBA’s loans for home approvals revealed that up take for mortgage loans continued to show signs of improvement. Meanwhile, today’s consumer confidence data from the US will hold significance in gauging the health of the US economy toward the end of the third quarter.

Pound Sterling – UK Markets

Sterling is trading higher against the Euro, as traders stayed cautious ahead of Moody's credit review of Spain during the course of the week. Moreover, Sterling continued to climb against the US Dollar, as data from the BBA revealed an unexpected growth in demand for mortgage loans in the UK for August. Meanwhile, markets are expected to pay attention to BoE’s MPC member, Paul Fisher’s statement for clarity over the central bank’s future course of action, given the growing speculation that the BoE would once again raise its asset purchase target in its monetary policy meeting in November. In yesterday’s session, the Pound continued its dominance against the Euro, after data revealed an unexpected fall in the German business climate index for September. Apart from domestic cues, markets are also focused on developments in the Eurozone for further direction.

US Dollar – US Markets

The US Dollar continued its strong performance against the Euro in today’s session, as traders remained cautious amid uncertainty over Spain’s stance in seeking more aid and prevalent concerns surrounding the situation in Greece. Meanwhile, the consumer confidence index due for release later today, would remain a key focal point for gauging the morale of American consumers. Yesterday’s Dallas Fed’s manufacturing survey sprung a surprise, with the index registering an unexpected uptick for September. However, in contrast to the positive manufacturing data from Dallas area, the Chicago Fed’s national activity index declined for August. Today’s manufacturing index for the Richmond area would hold significance, given the mixed signal offered by major regional indices. Meanwhile, traders are also expected to keep a tap on other indicators related to the housing market in today’s session, given the evident change in the housing sector and home builders’ sentiment.

Euro – European Markets

The Euro continued to trade lower against the US Dollar, as the situation in Spain and Greece prompted traders to shun the single currency. However, the Euro pared its losses, after data revealed that consumer confidence in Germany remained stable for October, while the French business sentiment index remained unchanged for September. Spain’s reluctance to tap fresh aid from its counterparts has heightened the chances of the nation’s credit rating being downgraded by Moody’s later this week. Meanwhile, reports emerged that Greece is currently facing a budget shortfall of €20 billion. However, the Greece’s Ministry of Finance denied such reports. The outcome of today’s meeting between German Chancellor, Angela Merkel and the ECB head, Mario Draghi, will remain a key highlight on account of Spain’s rigid approach in tackling its fiscal problems. Markets are also expected to track the outcome of the bond auctions in Italy for gauging the risk appetite among market participants.

Other Currencies – Highlights

The Swiss Franc declined against the US Dollar after data from UBS revealed that the Swiss consumption indicator fell to 1.03 for August from a revised reading of 1.48 in July. However, the Franc advanced against the Euro in today’s session, in the midst of prevalent worries surrounding the debt situation in the Eurozone. Meanwhile, markets are expected to pay attention to SNB Chairman, Thomas Jordan’s speech later today for insights into the stance that the central bank plans to adopt in the future. With no major releases scheduled for the week, developments from the Eurozone are also expected to play a vital role in setting the trend, given the Franc’s peg against the Euro. Meanwhile, the outcome of Italian bond auctions and economic releases from the US are expected to provide cues to the currency markets in today’s session.