Brave New World

September’s here 01/09/2009

The first day back after the summer break for European traders has heralded some interesting moves in the currency markets. With a notable gap opening up in opinion over prospects for global economic recovery direction in FX over the summer been sporadic,with most currencies trading in narrow, though volatile, ranges. Despite seemingly positive economic data from Asia, Europe and the US, the markets took on a distinctively negative tone towards the end of the day, with the USD gaining against all currency pairs, bar the JPY, in European afternoon trading. The AUD has been particularly hard hit, following the announcement by the RBA that rates would remain on hold for the foreseeable future; a disappointment to Aussie bulls who were expecting a more hawkish statement. Better than expected Chinese PMI figures helped boost equity markets in Asia and, initially, Europe, as did figures showing a drop in German unemployment. The first chink in the armour began with UK worse than expected manufacturing figures in the form of the PMI index, which reversed an early morning rally in Cable to 1.6377. The pair fell throughout the day to a low of 1.6111, before staging a late recovery. Despite yet more data from the US- ISM data showing the fastest 2 month growth in US manufacturing since 1983 and much better than expected July pending home sales growth- the market was spooked by increased concerns about the health of the banking sector and worries about the continued weakness of the American consumer. The USD benefitted from its safe haven status, with equity markets, bond yields and energy prices all suffering.

September is a nervous month for investors, with a reputation for being the worst monthly performer for the year. This year the nervousness is even greater as equity markets have ratcheted up ever more impressive gains over the summer and many economists- most notably those from Goldman Sachs and Morgan Stanley- are now talking about a world-wide V- shaped recovery. Other investors, and to be fair central bankers, are not so sure. In any case the first day of September has not disappointed in causing heart flutters.