Amid all the cornucopia of high-level talks this week, including the Eurogroup, ECOFIN, G7, and IMF meetings, not much of what has been said surprised the markets.
Authorities exchanged rhetoric about the ailing global economy and how it can be addressed. Notable highlights were the discussions in the three-day IMF meeting where officials from around the world gathered to discuss the prevailing Eurozone issues. Current tensions surrounding an island dispute between China and Japan led a top Chinese delegate to pull out of the IMF meeting. IMF cut its world GDP forecast, citing further risks ahead including risks to the safe-haven status of Japan and the US, the world’s two biggest economies.
Early Thursday, Standard & Poor’s slashed Spain’s debt rating to BBB-minus, one notch above non-investment grade, increasing concerns that the ailing nation will proceed with a bailout request. A Spanish official told reporters that Spain will decide on bailout at an “appropriate time.”
Stocks, Bonds, and Commodities
The Asian stock market was relatively mixed, with top gainers on Friday being indices of Hong Kong, Philippines, Indonesia, and Singapore. Unlike Asia, Europe and the US stock markets were generally weak, with only the Dow being able to eke out a slight gain among the three main US indices.
As stocks slump, US treasuries and 10-year UK Gilts rose on lingering signs of economic slowdown on both sides of the Atlantic. US Treasuries ended the week with a four-day gain as the Federal Reserve purchased $1.889 billion worth of 30-year bonds, in keeping with its plan to keep borrowing rates low. For a second week, Spain’s 10-year bonds gained after the S&P debt rating cut.
In the commodities front, oil fell as the International Energy Agency cut its forecast for worldwide oil demand on continued concerns about slowing economic growth. IEA said that Iranian oil exports would likely remain depressed in the next few years.
Copper posted its biggest weekly decline in three months. Concerns about weakening demand linger as purchases of scrap copper has been slowing and China economic concerns continue to mount. Meanwhile, corn and soybeans experienced declines as demand for supplies weaken. United States is the largest exporter and grower of corn and soybeans.
Currencies
EURUSD moved within a 200-pip range throughout the week. The weekly open and the 1.3000 figure were never reached since the pair plunged from the start of Monday trading. The weakness in EURUSD and its inability to rise above 1.3000 could signify that further range trading is ahead, perhaps for the entire October.
Compared to EURUSD, GBPUSD performed a steady drop of nearly 170 pips since Monday. It was also unable to breach the nearest round number figure (1.6100). Meanwhile, AUDUSD bucked the trend and made a gradual 140-pip rise throughout the week. Since the attempt of breaking the 1.0300 figure ended in failure, it fell 70 pips and closed mid-range at 1.0230. Commodity price gains helped in AUDUSD’s rise.
In a recent speech, SNB Chairman Jordan told reporters that the “financial market sentiment has improved and reduced pressure on the Franc.” Having said this, he still views the Swiss currency as being “overvalued” and reaffirmed that the SNB “will continue to defend this minimum exchange rate with the utmost determination.” USDCHF closed the week at 0.9334.
The Week Ahead
October is rolling out another busy week ahead. Early Monday, China will release its CPI and PPI data. During the North American session, the market will look at US Retail Sales and Canada’s BOC Business Outlook Survey. For the rest of the week, New Zealand’s CPI, Australia’s Monetary Policy Meeting Minutes, UK’s CPI, PPI, BOE Inflation Letter, Germany’s ZEW Economic Sentiment, and US CPI data are out on Tuesday; UK Claimant Count Change and MPC Meeting Minutes and the highly-anticipated China GDP data on Wednesday; Thursday sees day 1 of a two-day EU Economic Summit, UK Retail Sales, Spanish 10-year bond auction, US Unemployment Claims and Philly Fed manufacturing Index; and finally, Friday data releases include UK Public Sector Net Borrowing, Canada CPI, and US Existing Home Sales.
