Market Update - 25 October 2012

• The FOMC meeting was a bit of a fizzer in the end, we had minor language changes with the Fed saying that household spending and inflation picked up somewhat while they offered no new guidance on policy.

• In his speech, Bernanke acknowledged the fall in the unemployment rate to 7.8% but he labelled it a “wiggle” in the data and would want to see sustained improvement before altering his course. Operation twist will expire in December so we might see more on that at the next meeting but of course the fiscal question in the US will be looming very large indeed at that point.

• USDMYR tracked the US equities and opened lower at 3.0550, I expect with the long weekend we could see some squaring of positions towards 2^nd half of the day and give us a touch of movement on the pair. Trading range unchanged at 3.0400-3.0900.

• Dollar rates again inched higher and there are more talks of rate rise coming in early 2014 instead of the 2015/2016 that was being expected.

• The Euro fell early after PMI figures fell again in the Euro Zone, in particular the German manufacturing PMI fell to 45.7 from 48 after 3 months of gains prior. Also, the German IFO business climate fell to 100 from 101.6, that’s now as low as it’s been since early 2010. So the data backing up the fears aired yesterday over German growth going forward, and the obvious problem of the troubles Southern Europe faces if the core drags it down.

• Equities in Europe eked out gains with the Eurostoxx up 0.5% while in the US the major indices were subdued and closed near their session lows, the S&P down 0.3% and treasury yields up 3bps on the night.

• Gold fell $5 to $1702 while oil fell $1 to $85.70 and copper stabilized after the stronger Chinese datum yesterday.

• Mario Draghi took his OMT plan into the lion’s den overnight, appearing before policy makers in an attempt to persuade them of the need for the Outright Monetary Transactions. He was received well according to sources but some remained sceptical, calling him a “dove under hawk’s feathers”.

• There was also more speculation over whether or not Greece had managed to agree on an extension with the Troika, but we are still left guessing for now.

• The new RBNZ governor has started his tenure by leaving rates on hold at 2.5%, catching some off guard, the front bill futures are trading 8pts lower at 44.