20131014

Good morning,

Last week, markets were pretty much in waiting position as the fight on the US Debt Ceiling continued. Although an extension was endorsed by the White House til November 22nd, the negotiations has broken down once again over the weekend. The implication in the markets should not be USD-supportive as on one side, the government shutdown will have a negative impact on growth and the decision from the Fed to taper probably will be delayed as a result. Short term rates in the US are still skewed to the upside though, which could have a continued effect on risk taking in the short term and keep liquidity relatively lower.

From Asia, data from China showed weaker than expected trade data while CPI data overnight came out higher than expected, indicating that we could see a slight damper on growth as a result of the non-stimulus policy from the PBOC. Should this be prolonged, it will have an impact on demand growth in the region. However the weak data, markets in China and Japan were up in the time of writing by 1.2% and 1.5%, respectively.

Today should be a relatively quiet day, as the US is closed for Colombus day and the only real point of interest on the data calendar is the European Industrial Production for September (exp. MoM at 0.8% vs. -1.5% prior). On the Monetary side, Bernanke will be speaking in Mexico, where the markets will be looking for any hints of monetary policy changes, however small the likelihood given that Bernanke soon will be replaced. In Europe, today a E17 meeting will commence in Luxembourg in preparation for the EC meeting later this October.

Later in the week, market action will pick up and already tomorrow, we could see some interesting moves in EUR/GBP as we have key data from the Euro zone and the UK inflation. The pair just managed to close above the 200-WMA and we could see a follow-through this week, should the data be supportive.

Have a nice day.