THE WEEK AHEAD IN
Contributed by Blair
Foreign Exchange Analyst and
17 August 2001
The Week Ahead In
Saturday, 4 August Friday, 10 August
WEEKLY HIGHLIGHTS AND WHAT TO WATCH
Weekly High: 123.18
Weekly Low: 119.08
Weekly Close: 120.28
|The yen appreciated vis-�-vis the dollar this week as the greenback fell below the �120.00 figure and came within a few pips of testing the �119.00 figure. Trading conditions were thin on account of the Obon holiday thus moves were exaggerated. Koizumi�s re-election to the LDP�s presidency will promote reforms, as will the BoJ�s token quantitative easing this week, including additional monetization. The BoJ monthly report read "adjustments in economic activities are intensifying further, reflecting a substantial decline in exports and profits." BoJ�s Hayami warned against a depreciating yen saying it is "troublesome for China, Korea, and Taiwan if yen weakens too much." The government revised GDP data which means the government will avoid a technical recession and an anonymous LDP official said the BoJ�s move is "a step forward, but not enough." Part of the yen�s moves may be due to traders unwinding yen carry trades. The BoJ indicated it will give "careful consideration" to an LDP request for a debate on inflation targeting. |
BoJ�s Policy Board agreed further quantitative easing:
1. Increased current account deposit target to �6 trillion from �5 trillion
2. Increased monthly outright purchase of JGBs to Y600 billion
3. "Economic adjustments are deepening as (IP) is sharply declining"
4. "Weaker demand could intensify downward pressure on prices"
5. MPM minutes saw "narrow path" for policy and some wanted weak yen
Hayami: "Downside risks are becoming a reality"
"In principle, easing monetary policy would lead to � depreciation"
"Ready to take optimal steps" to spur some inflation
"Does not think BoJ will have to buy foreign currency assets"
"Difficult for one country to make unilateral" intervention
Consumer prices may recede further
Shiokawa: "Welcomed" BoJ�s move but wants further easing
"Expects yen will probably weaken"
Takenaka: "Hopes BoJ is aware of its responsibility as a �deflation fighter�"
Kuroda: Yen�s moves do not reflect fundamentals
"Inappropriate" for yen to appreciate after BoJ�s move
Mizoguchi: MoF will take "appropriate action" if necessary
Utsumi: Yen�s and dollar�s moves "a competition of weakness"
Economic data: June current account surplus at �771 billion, off 40.5% y/y; April � June current account surplus at �2.09 trillion, off 36.1% y/y; corporate bankruptcies off 3.1% y/y; January � March GDP +0.1% q/q; personal spending +0.6% q/q; capital spending +0.9% from �1.0%; June leading indicators at 40.0
IMF�s Saito said "inflation targeting helps greater transparency�in the short term, (reform) has to be accompanied by supportive policies � and one of them is further monetary easing by the BoJ"
The Nikkei 225 stock index closed the week at � 11,445.54.
Weekly High: 0.9203
Weekly Low: 0.8920
Weekly Close: 0.9172
|The euro scored a rare victory vis-�-vis the dollar this week as the single currency reclaimed the $0.9100 figure and even tested the $0.9200 figure. The IMF issued a negative report on the dollar and O�Neill reiterated the U.S.�s strong-dollar policy. The FOMC will convene on Tuesday and is expected to ease policy by 25 bp and possibly shift to a neutral bias. Consumer price pressures in the U.S. are softening and many cite nascent deflationary pressures. Receding EMU-12 price pressures saw core HICP decline to +2.0% but the easing pressures may not be enough to get the ECB to ease this month. Buba�s monthly report evidenced a sharp contraction in GDP growth in Q2 to +1.0% y/y and Buba officials said labour costs must remain moderate. |
IMF�s annual report on U.S. economy was negative for dollar
1. Dollar is "at least" 20% above "medium-term equilibrium"
2. Dollar could fall if U.S. productivity "proves disappointing"
3. Sizable U.S. current account deficit is dollar-negative
Poehl: Criticized "inflexibility and occasional ineptitude of ECB�s communication"
Weak euro or strong dollar?
French: Anonymously said they supported Trichet or Noyer as Duisenberg successor
Eurozone data: German June retails sales off 1.3% m/m and 0.6% y/y; EMU-12 July HICP �0.1% m/m, +2.8% y/y; core HICP +2.0% y/y; French manufacturing +2.6% y/y; French industrial output +2.3% y/y
U.S. data: July retail sales unchanged m/m, +0.2% ex-autos; June retail sales revised to unchanged m/m and �0.2% ex-autos; business inventories off 0.4% in June, May revised down to �0.2%; industrial production off 0.1% in July; capacity utilization at 77.0%; consumer price inflation off 0.3% in July, core CPI +0.2%; housing starts +2.8% to 1.672 million; initial jobless claims off 8,000 to 380,000; June trade gap widened 3.3% to US$ 29.4 billion; University of Michigan�s consumer sentiment index up to 93.5; Philadelphia Fed�s main business conditions index worsened to �25.3 from �12.2
O�Neill: "U.S. has a continuing, continuous policy�same dollar policy"
U.S. economy on the "threshold of improvement"
Weekly High: 1.4520
Weekly Low: 1.4167
Weekly Close: 1.4452
|The British pound made an impressive move vis-�-vis the dollar this week as sterling tested the $1.4500 figure before paring some gains. RPIX decreased on account of lower food prices and input prices registered their largest annual decline since June 1999. The Daily Telegraph said Brown has Treasury researching the five economic tests that would precede a national referendum on acceding Economic and Monetary Union. The MPC�s August minutes evidenced a divergence of opinions in a "finely balanced" argument. CBI�s Jones said "with inflation figures coming in at 1.9% - all of that militates against any rise in interest rates and in fact calls for another cut" to "assist beleaguered industries." Unemployment remains low and retail sales evidenced very strong final private demand. Short sterling futures are predicting rates of 5.75% by end of 2002 |
MPC voted 6 � 3 in August for 25bp decrease in repo rate to 5.00%
1. King, Clementi, and Plenderleith voted to keep repo at 5.25%
2. At least two members voted for 50bp reduction
3. "At time of increased uncertainty, gradualist strategy might be preferable"
Jones: "Not seeing growth in wage settlements in service sector"
"Unemployment is rising in manufacturing"
"Scope for at least one more cut of +0.25% to get rates down"
U.K. data: input prices off 1.8% m/m and 0.3% y/y; crude oil prices off 11.8%; RPIX off 0.6% m/m, +2.2% y/y; RPI off 0.6% m/m, +1.6% y/y; July HICP +1.4%; claimant count fell 12,800; unemployment rate steady at 3.2%; average earnings in three months to June +4.8%; retail sales +0.6% m/m and +6.0% y/y
Weekly High: 1.6955
Weekly Low: 1.6531
Weekly Close: 1.6559
|The Swiss franc appreciated vis-�-vis the dollar this week as the greenback slid several big figures. Swiss retail sales were reported strong and this could decrease the likelihood of an easing before the 20 September SNB policy statement. The SNB does not appear content with the franc�s appreciation vis-�-vis the dollar as suggested by the fact that it added overnight liquidity at 3.27% at the end of the week � above the SNB�s 3.25% three-month Swiss franc LIBOR target.|
Swiss data: H1 2001 retail sales +2.0% y/y; July producer and import price index +0.2% y/y, off 0.1% m/m
19 August 2001
2301 UK Q2 CBI pay settlement
20 August 2001
June quarterly capital goods price index
BoJ 28 June and 16 July MPM minutes
July MBBG lending
July provisional M4
July CML mortgage lending
July public sector finances
June/ July trade
June industrial production
June wholesale trade
July leading indicators
RICS housing market survey
21 August 2001
Switzerland Q2 industrial production
0830 UK Q2 business investment
1100 Canada July consumer price index
1230 Canada June retail trade
1815 US FOMC interest rate decision
2350 Japan June preliminary tertiary industry activity index
22 August 2001
UK Q2 revised GDP
23 August 2001
1000 EMU-12 June current account balance
August CBI industrial trends
Weekly jobless claims
1230 Canada June employment insurance
Philadelphia Fed quarterly Survey of Professional Forecasters
FOMC minutes (26 � 27 June)
24 August 2001
US July durable goods
1400 US June single family
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