Scant Dollar Reaction to Election as Investors Await FOMC Statement

November 3, 2010

The dollar is off 0.1% against the euro, unchanged relative to the Swissy, and up 0.2% versus the yen.  Against commodity-sensitive currencies, the greenback firmed 0.1% against the Aussie dollar but eased 0.2% against the Canadian dollar and by 0.4% relative to the kiwi.  The dollar lost 0.7% against sterling and 0.1% against the yuan.

Japan is closed for Culture Day.  Elsewhere in the Pacific Rim, stocks advanced 1.7% in the Philippines, 1.4% in Pakistan, 0.8% in New Zealand, 0.4% in Singapore, 0.2% in Thailand and 0.1% in Hong Kong, but they eased 0.4% in Taiwan, 0.5% in Indonesia, 0.3% in China, and 0.1% in India.  The Paris Cac and British Ftse edged 0.1% higher, while the German Dax is up 0.2%.

Ten-year British gilt and German bund yields slid two basis points each.  Many peripheral long-term interest rate spreads have widened.

Oil climbed 0.9% to $84.62 per barrel, and gold prices are 0.2% higher at $1354.30 per ounce.

In the U.S. election,

  • The House of Representatives will see the greatest shift in 62 years.  The Republicans have 240 confirmed seats, with the Democrats at 183 and 12 still to be decided.  Boehner becomes the next Speaker of the House.  The Democrats previously had 257 seats.
  • The Democrats retained the Senate but experienced an eight-seat loss to 51 from 59.  Majority leader Harry Reid, a target of a fierce tea party challenge in Nevada, won.  So did Boxer in California, and Democrats retained both seats in New York.  Feingold lost in Wisconsin, however, and Rand Paul took Kentucky.
  • Despite wins in California (Jerry Brown) and New York (Andrew Cuomo), the Republicans will now hold at least 27 governorships with 7 races still undecided.  The Democrats are assured of just 15 state governorships.

Today’s biggest shock would be if the FOMC did not renew quantitative easing.  Conventional wisdom believes that policymakers will opt for an incremental approach to be guided by how the labor market and inflation respond down the road rather than a huge commitment all at once as they did in 2009.  The announcement will be made at 14:15 EDT or 18:15 GMT.

Service sector PMI surveys and composite purchasing manager indices were announced for several economies.

  • The British services PMI reading of 53.2 in October was 0.4 points better than in September and defied expectations of a small decline.  This was the second straight improvement from a 16-month low of 51.3 in July and repeated in August.
  • Russia’s services PMI jumped to 55.6 from 51.5 in September and a trough of 47.0 in August caused by the heat wave.  Activity has now fully rebounded from the weather disaster.  The composite PMI improved to 54.7 from 52.3 in September and 49.9 in August.
  • Saudi Arabia’s composite PMI held at an above-average reading of 58.4 in October.  The United Arab Emirates composite index rose to 53.8 from 52.6 in September and 52.1 in August.
  • India’s service-sector PMI was 56.2, up from 55.6 in September but below August’s score of 59.3.  The composite index recovered to 58.4 in October after dropping to 56.5 in September from 60.3 in August.
  • Hong Kong’s composite reading edged up 0.2 to 53.0, with prices at a six-month peak, however.
  • According to HSBC measures, China’s services PMI rose to 56.4 from a 19-month low of 55.2 in September.  The composite Chinese PMI of 57.4 after 54.3 in September constituted a six-month high.

The Central Bank of Iceland cut its 7-day collateralized lending rate by another 75 basis points, matching the previous drop on September 22.  The level is now at 5.5%, down from 10.0% at the start of this year and a peak of 18% in October 2008.

Australian building approvals fell 6.6% in September on top of a 4.7% drop in August.

Turkish consumer prices rose 1.8% on month in October, which was more than forecast, but the 12-month increase was 8.6%, down from  9.2% in September.  Turkey’s PPI rose 1.2% on month and 9.9% on year, up from a 12-month pace of 8.9% in September.

Norwegian unemployment remained at 3.4% in August.  Spanish consumer confidence weakened 5.7 points to 67.1 in October.  French factory sales dipped 1.0% in August.  And the volume of Swiss retail sales was 3.8% higher than a year earlier in September.

South African business sentiment weakened last month to 85.9 form 87.8 in September.

A big day lies ahead in the United States.  Despite the FOMC announcement and Monday-morning analysis of the election results, several economic indicators are scheduled, including weekly oil inventories and monthly factory orders, private employment a la ADP, and service-sector purchasing managers figures.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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