Top Stories Pre-NY Open: CHF Weakens; Lagarde Talks Banks, Growth; Nado as New PM
With Tentative Risk-On to Start Week, CHF Weakens
Overall risk sentiment was positive overnight, which helped boost higher yielders against the safe haven USD.
The EUR, GBP, AUD, NZD and CAD were stronger against the USD following Bernanke’s speech as traders focus on the prospect of weak macro data from the US and the idea that Bernanke and the Fed will come up with some form of monetary stimulus in the months to come.
The UK was closed for a national holiday, which took away a good chunk of liquidity, London is the world’s largest foreign-exchange hub.
The Swiss franc fell to its weakest level against both the EUR and USD in more than a month on the back of the positive tone in equities and in general risk sentiment.
From Bloomberg: “The Swiss franc, yen and dollar dropped against most major counterparts as stocks advanced on speculation the world will avoid a return to recession, reducing demand for a haven.
There’s a sense that risk is back on,” said Elizabeth Gregory, a market strategist at Swissquote Bank SA in Geneva. “We’ve seen equity markets doing pretty well since Bernanke’s speech on Friday. That’s helped people migrate away from their safe-haven positions in the Swiss franc.”
Lagarde Calls for Bank Recapitilization, Dont Choke Off Growth
The top overnight story from Europe was IMF Managing Director Christine Lagarde warning that European banks need to be recapitalized.
From Reuters: “Developments this summer have indicated we are in a dangerous new phase,” International Monetary Fund Managing Director Christine Lagarde said at a conference for top officials and leading economists from around the globe. ”The stakes are clear; we risk seeing the fragile recovery derailed. So we must act now,” she said.
She called for a “mandatory substantial recapitalization,” through private channels if possible, but otherwise through some form of public, Europe-wide funding, such as the European Financial Stability Facility.
“Put simply, macroeconomic policies must support growth,” the former French economy minister said. ”Monetary policy also should remain highly accommodative, as the risk of recession outweighs the risk of inflation. Fiscal policy must navigate between the twin perils of losing credibility and undercutting recovery.” Lagarde said, adding that central banks should stand ready to jump back into unconventional policy actions if needed.
The EUR/USD rose above 1.45, but fell back below that level in early pre-NY open trading, unable to hold onto its gains as we continue to have concerns about European banks and systemic risk.
In Japan, We Have a New Prime Minister – Noda:
Noda’s ascent to the prime minister spot may mean Japan sees some higher taxes in the near future. He has been a proponent of higher taxes to help in reconstruction as well as getting Japan’s fiscal house in order. He has also as Finance Minister overseen 3 forays into intervention against the strengthening Yen.
From Bloomberg: “Yoshihiko Noda was elected head of Japan’s ruling party, paving the way for the 54-year-old finance minister to become the third prime minister since the party took power two years ago.
Democratic Party of Japan lawmakers voted 215 to 177 for Noda, who defeated Trade Minister Banri Kaieda in a run-off after public favorite Seiji Maehara was rejected on the first ballot. The DPJ is set to use its majority in the lower house to appoint him as premier to succeed Naoto Kan tomorrow, making him the country’s sixth prime minister in five years.”
Chief Market Analyst
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