Daily FX market outlook

Daily FX market outlook

Markets on risk-off on final day of the quarter.

Worries about the fate of Deutsche Bank, Germany’s largest lender as well as other concerns about US elections and a possible December rate hike by the Fed led to some profit-taking in risk assets on Friday.  Asian stocks, influenced by losses on Wall Street overnight, also fell with Tokyo’s Nikkei and Hong-Kong’s Hang Seng index losing more than a percent.

The yen is traditionally a safe haven at times of market turbulence but yen moves also seemed to be influenced by month-end flows.  As today is the last trading day of September and the final day of the third quarter, there could be some position adjustments that lead to market moves which are unrelated to news events or a change in the fundamentals.  The yen pushed the dollar below the 101 mark to trade at 100.80.

Despite the worries concerning Deutsche Bank, euro / dollar was relatively steady around 1.1220.  The Swiss franc was clearly a beneficiary of the turmoil as it rose to 4-week and 6-week highs versus the dollar and the euro respectively.  Gold also did well as it managed to eke out some gains to climb back to $1324 an ounce.  Comments the previous day by Fed Chair Janet Yellen that the Fed could buy stocks and corporate bonds in a downturn, might also have weighed on the dollar.

In the day’s economic data, China’s manufacturing PMI (Final) in September stayed close to neutral at 50.1.  Most Japanese data were on the disappointing side, as inflation for August slightly missed estimates and household spending contracted more-than-expected.  The unemployment rate also rose to 3.1% in August from 3% the previous month.  Only industrial output managed to beat expectations by climbing 1.5% month-on-month instead of the 0.5% forecast.

For the remainder of the day, flash inflation for September out of the Eurozone will probably be the highlight of the day as inflation is the most important economic indicator for the European Central Bank.  Inflation is expected to have picked up to a 0.4% annual rate (headline) while the core rate will rise slightly to 0.9%.  Later around the beginning of the US session, personal consumption and income for August as well as the related PCE price indices will be watched.  Finally, University of Michigan consumer sentiment (final) will round up the week’s, the month’s and the quarter’s releases.