US data shows improvement, Draghi introduces OMT

The greenback is weaker against most of the majors except for the JPY, NOK, and SEK. The Swedish krona was lower after the Riksbank unexpectedly delivered a 25bps interest rate cut by to 1.25% (cons. 1.50%). It was the JPY which underperformed against the USD however as US treasury yields1 rallied on better than expected economic data (and not due to earlier comments from BOJ Governor Shirakawa). Elsewhere, the ECB surprised the markets by keeping its policy rate on hold at 0.75% (cons. 0.50%) and President Draghi introduced the Bank’s new bond buying program, the Outright Monetary Transactions (OMT) program. The Bank of England held steady on monetary policy as expected at its meeting today.

ADP, ISM, jobless claims improve

US economic data was better than anticipated with a strong reading in the August ADP print that showed the addition of 201K payrolls from an upwardly revised 173K in July (cons. 140K). Weekly initial jobless claims also came out positively, with a better than expected decline of 12K to 365K from the previous 377K and the ISM non-manufacturing index unexpectedly rose to 53.7 from 52.6 (cons. 52.5). Furthermore, the details of the ISM report showed the employment component rising to 53.8 from 49.3. Taken together, the data bodes well for tomorrow BLS employment report with our NFP model forecasting an increase of 200K jobs (click here to read our Aug. NFP preview).

US equity markets welcomed the positive data as stocks rallied into the close. The DJIA1 finished higher by about +1.87% while the S&P 5001 closed up by around +2.04%. Precious metals gained, and oil 1 is lower after weekly US crude oil inventories fell by -7.43M barrels.

European Central Bank introduces OMT

ECB President Draghi announced the end of the SMP and introduced the Bank’s new bond buying program, the Outright Monetary Transactions (OMT). Under the new plan, the ECB would buy bonds to nations that meet EFSF/ESM conditions and the bond buys would be unlimited in amount and sterilized. Draghi acknowledged that purchases in the secondary market are not in violation of ECB rules which prohibit primary market buying. However, there was opposition to the SMP program in the past and Draghi indicated that there was one dissenter at today’s vote (this was most likely Bundesbank head Wiedmann). The idea of sterilized purchases may be more favorable than the previous unsterilized SMP to those that oppose increases in the money supply, however it does not provide additional monetary stimulus other than improving the transmission of current policy.


Other developments out of the ECB included downgraded economic growth projections for this year and next as well as increased inflation forecasts. The euro responded mostly positively as EU sovereign yields1 moved broadly and significantly lower. Of the G10 currencies, the euro is currently weaker against the commodity currencies on the back of improving sentiment and is higher against the rest. EUR/USD is testing above the top of its long term channel top, but the move so far has not been convincing.

Data Watch

Data due out of the Asia/Pacific session tonight includes the July trade balance figures and August AiG performance of construction index out of Australia. Japan will see the release of its August official reserve assets as well as the July leading and coincident indexes.

Источник: Forex.com

06.09.2012