Intraday Market Thoughts

ISM Misses, BOJ Up Next

by Adam Button
Oct 3, 2013 23:39

A soft ISM non-manufacturing report and the continued US budget impasse weighed on the US dollar Thursday. The safe haven CHF was the top performer while GBP lagged. The BOJ decision is up next.

US politicians made little headway in the budget stalemate and markets soured .The S&P 500 fell the most in a month and EUR/USD hit an 8-month high. There are signs of cracks in both the Democratic and Republican fronts but no clear signs of hope for a deal. One piece of good news came from Boehner who provided assurances that Republicans will ultimately vote for a debt ceiling increase. Those headlines crossed shortly after USD/JPY fell below 97.00 and aided a recovery to 97.25.

As economists churn out numbers to attempt to quantify the cost of the shutdown, hard data is pointing to a softer US economy even before the shutdown. The ISM services index slumped to 54.4 compared to 57.4 expected. That's still comfortably in the growth phase but brings the Fed no closer to a taper.

The other data point on the day was initial jobless claims, which was released despite the shutdown. It showed 308K fresh claims compared to 313K expected and the Labor Dept said there were no special factors. Claims have been a bright spot in recent data.

Unfortunately the market won't get a look at the main jobs data point tomorrow with non-farm payrolls now officially delayed due to the shutdown. It will be rescheduled when Congress makes a deal.

Today's market reaction to upbeat Congressional headlines is instructive to what will happen when a deal is finally struck. The biggest gainers were USD/JPY and USD/CHF as safe haven flows reverse. Since budget trouble started last week, USD/JPY is down 160 pips. If the details of a deal extend to at least six months and include provisions to raise the debt ceiling, that hole could be erased.

Coming up later, the BOJ will render its decision. There is no set time but expect headlines around 0300 GMT. This week's upbeat Tankan numbers will probably keep the BOJ on the sidelines. One Tankan caveat was the softer capex survey results. The government and BOJ have been pushing Japanese companies to invest and policymakers would have liked to see progress.

China is on holiday once again.

The latest Premium Insights outstanding are EURUSD (2), GBPUSD (1), AUDUSD (2), CADJPY (2) and AUDCAD (2). Both EURUSD are nearest to their final targets.
Act Exp Prev GMT
ISM Non-Manufacturing Index
54.4 57.4 58.6 Oct 03 14:00
AiG Performance of Services Index (SEP)
47.1 39.0 Oct 02 23:30
Challenger Job Cuts (SEP) (y/y)
40.289K 50.462K Oct 03 11:30

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