The difficulty with determining the direction of a new quarter

The euro is suffering more than anyone else, as the market has ceased to strive tirelessly to sell the dollar. If you look rationally, there are many fundamental reasons that could explain such a movement, such as the fateful comment Nobel Prize for Economics Stiglitz at the weekend about the long-term sustainability of the single currency.


Nevertheless, there were many bearish stories on the euro and during the rally over the past four weeks, but it just so happened that the dynamics of the weakening dollar and the Asian balance of payments accounts prevailed. Now, it seems the markets a bit puzzled. Consequences and the choice of assets in the first round of quantitative easing have been fairly obvious. At this time (if there) the consequences would be less predictable, and in the fourth quarter, it seems, the markets are not sure whether to put the Rally for risky assets, or does not take risks.

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Expectations of further capital raising

Two independent reports today suggested that the British and Swiss banks need more capital raising. According to Britain's New Economics Foundation suggests that the phasing out of government support in the coming year will lead to a space funding, which will require banks to attract additional 25 billion pounds a month, and the risk of further support from the state. Also, there are suggestions that UBS and Credit Swiss may need to draw twice the capital required by Basel III, confirming the status of "too big to fail" in relation to the Swiss economy.

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Currencies of developing countries

If we consider an index of currencies of emerging markets (EM) JPMorgan, September was one of the strongest months for EM currencies in May of 2009 (when the rally gained momentum on the quantitative easing), and growth of 4,4% was the third in the last 10 years for emerging market currencies. Indirectly, it also has an impact on the strength of the euro on capital flows have grown at a surplus balance, which currently managers least likely keep the dollar.

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Politicians are ready to respond to the weakness of the dollar

The coming week will put politicians to the realities of the strengthening of their currencies, which are in fact the only weakness of the dollar over the last month or so. While the dollar weakened on expectations of further QE, other options for policy makers is to follow the same path, or to postpone the tightening. Japan was a direct illustration of the limitations of unilateral intervention in the face of opposing global trends. Bank of Japan on Tuesday is unlikely to be able to avoid further easing, especially if the profits from the unsterilized foreign exchange intervention is limited (because the intervention itself were fruitless, and therefore limited). Reserve Bank of Australia will also meet on Tuesday and, although it is expected further tightening with the rate increase to 4.75, this is not a fact, if you look at the market positioning. We do not expect to get much from the Bank of England on Thursday (at least until the protocols). And although there are great expectations from the ECB press conference on Thursday, Trichet is likely to realize, will try to avoid the impression that everything will remain unchanged until the end year.



Money is not fighting for the weak dollar. The fact that the dollar weakened before and after the start of a new month and quarter, suggests that many investors do not want to get involved in this fight of the weak dollar. As mentioned above, this allows us to speak about a very interesting quarter with respect to both monetary policy and exchange rates before the meeting of G20 in the next month. The perceived inevitability of further quantitative easing by the Fed has a material impact on expectations of policy makers everywhere, with the departure of central banks from tightening further (Canada and probably Australia) or on the other hand, the transition to a more soft Policy (UK). The politicization of the force before the meeting of G20 in the next month, not least because of the fact that the relaxation of monetary policy to counteract the rise in exchange rates is unlikely that will result when rates near zero, leaving the non-standard measures as the main lever of influence.

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In Britain, the continuing process of correcting the balance sheets of households

Data published in Friday, has always been a good reflection of the balance of consumer preferences in Britain. Of course, under the weight of the credit and housing boom, many households reduced assets (taking a loan under the rising costs), providing a cost. This trend has truly turned around as a drop in home prices and a tightening of credit availability. It was the ninth consecutive quarter of decline, which became the largest in pound terms, since March last year. At the same time, the data still point to a tightening of credit conditions continue to reflect the uncertainty for the real estate market. All of this suggests an ongoing process of correcting the balance sheets of households Britain.

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The manufacturing ISM bit below the belt

It has been a slight decline in the balance (with 56.3 to 54.4) and, while the estimate of price change rose to 5-month high of 70.5 for those who look at the future, the balance showed worsening. New orders, production and capacity of existing orders fell, while inventories rose. All this indicates the weaker data on production in the future.

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