Rate snapshot: Is the world headed for a currency war?

by MPA06 Oct 2014
Rate markets started unchanged early this morning; the US stock indexes pointed to a strong open at 9:30. No scheduled economic data today, this week’s calendar is thin on data after the stronger than expected Sept employment report last Friday. In the geo-political situations: Honk Kong protestors split on how to continue, with some wanting to move out of blocking commercial streets and consolidating at government buildings; The bombs continued to fall in Iraq and Syria but ISIS so far has foiled the hoped for effect by moving away frm military sites that are the targets, thwarting the bombs’ impact.
More decline in EU economic data; Germany’s factory orders declined to the lowest since 2009. Orders, adjusted for seasonal swings and inflation, fell 5.7% in August, the Economy Ministry in Berlin said today. Economists predicted a 2.5% decline. Export orders dropped 8.4% in August, while domestic demand slid 2%. The World Bank lowered its forecasts for growth in developing East Asia this year. The region is projected to grow 6.9% in 2014 and 2015, down from 7.1% seen in April. That compares with global growth of 2.6% in 2014.
Is the world headed for a currency war? Looks more and more likely that it is; the ECB is on record wanting the euro to decline, Japan also in the mix and now news that China is considering weakening its yuan. Exports in those areas and emerging markets are declining, forcing measures designed to make each country and region more competitive. The US dollar is at a 4 yr high against the euro currency, the stronger the dollar becomes the less competitive for US exports. No one wins in a currency war escalates but economic leaders around the world are without much choice---or so they believe. Economic growth globally is not improving, most economies are slowing. In the US we benefit by being the strongest growth region although we are not setting any records in growth. The US Fed, World Bank, the IMF all continuing to revise growth forecasts lower each time they put out data.
Not much data out this week but what we have is a plethora of Fed officials making speeches. So many speeches from Fedsters that traders are becoming numb to them. Treasury will borrow $61B this week with three auctions. Geo-political issues in the absence of more compelling economic measurements will carry slightly more weight with traders this week.
This morning the DJIA opened at 9:30 +65, NASDAQ +16, S&P +8. 10 yr 2.44% unch; 30 yr MBS price +5 bps frm Friday’s close. US stocks improving on Brazil’s elections that has driven its stock market up 8.0%.
US interest rates little changed so far this morning on lower German rates that fell on weak factory orders; the 10 yr bund rate this morning 0.91%. Last Wednesday the bund yield declined to 0.896%. As long as US interest rates are higher than other key rates in G-7 countries our rates will find support. Still a little safe haven moves but not nearly as strong as a month ago. The technicals still hold minor bullish readings, but since the beginning of Sept the 10 has not been able to break 2.40% or 2.65%, the range in the last month. U.S.-led airstrikes designed to serve notice on Islamist extremists in Iraq and Syria have also delivered a sobering message to Washington and its allies: Breaking the militants’ grip will be every bit as difficult as they feared. At the moment the Hong Kong issue is moderating; the government has been reticent to use force lessening the concerns. Ukraine still smoldering but it too has waned in importance recently.
This Week’s Calendar:
10:00 am August JOLTS job openings (4.71 mil compared to 4.673 mil n July)
1:00 pm $27B 3 yr note auction
3:00 pm August consumer credit (+$20.0B frm +$26B in July)
7:00 am weekly MBA mortgage applications
1:00 pm $21B 10 yr note auction
2:00 pm FOMC minutes frm Sept meeting
8:30 am weekly jobless claims (+6K to 293K)
10:00 am August wholesale inventories (+0.3%, July +0.1%)
1:00 pm $13B 30 yr bond auction
8:30 am Sept import and export prices (imports 0.8% ex ags; export prices -0.1% ex oil)
2:00 pm Sept Treasury budget (+$72B, and the 2014 fiscal total)


Should CFPB have more supervision over credit agencies?