Search ForexCrunch

The celebrations in the wake of the US debt deal over the weekend was just getting going when the US manufacturing ISM numbers removed the punchbowl, leaving markets feeling flat.   US stocks ended the day modestly softer, whilst the rug was pulled from beneath the fresh gains on the Aussie.   Also notable was the Swiss franc’s gains relative to the yen, the Swissie gaining 1.4% so far this week.   With the US debt deal through Congress, there’s just the vote in the Senate later today to get through, which is expected to pass with ease.  

However, there remain valid concerns regarding the US debt rating and the scope for a downgrade in the near-term, given that this deal falls short of that which was being aimed for at the start of the process. Sovereign debt will remain a key market theme for the remainder of this year and likely for years to come.

Guest post by FxPro


The sunshine was very brief.   The good start to the month has been scuppered very quickly by the July manufacturing ISM data in the US. The headline index plunged to 50.9, from 55.3, with this weaker than excepted outturn totally undermining the price action we saw earlier on in the session that was largely characterised by relief. US stocks are now in the red, whilst the dollar has strengthened and the Swiss franc has also stormed ahead. The other notable factor has been the further Swiss franc appreciation, whilst at the same time the strengthening of the yen has been far more modest. This fits with our earlier assumption of investors becoming far more discerning regarding sovereign risks. Furthermore, the US data does add weight to the view that the softer run of data through May and also some of June may be more than just a temporary soft patch.

Australian rates steady but with note of caution.  As expected, rates were held steady at today’s meeting, but we’ve seen the Aussie and market interest rates softer in the wake of the statement.   Even though the committee did discuss the possibility of raising rates, it was considered prudent to hold rates steady “particularly in view of the acute sense of uncertainty in global financial markets”.

UK third quarter starting soft.   After the disappointing Q2 data, the data seen so far for the third quarter has been on the disappointing side. The latest was the manufacturing PMI, which nudged below the 50.0 level for the first time for nearly two years, with the July release being the sixth consecutive monthly decline.   The extent of the fall suggest this is more than just a temporary weakening and brings up greater concerns as to the sustainability of the UK recovery story in the face of the fiscal tightening that is biting this year.   Expect more talk of ‘plan B’, or lack of it over the coming weeks.

The dollar’s debt reaction.  The initial knee-jerk reaction against the franc and yen (strengthening) was totally understandable given the gains of the past two weeks, together with the fact that investors’ main concern in recent weeks has been safety and capital preservation. The reaction against the dollar bloc was a typical “risk-on” move, with the higher yielders gaining the most.  Don’t forget that Monday was also the first day of the month so leveraged funds (such as hedge funds) have a new trading month and, if they are lucky, new money to work with. The fact that the euro and sterling were little changed initially was pertinent, given that both have sovereign risk concerns of their own. The euro has been in focus in recent weeks, but sterling is also not out of the woods as the sluggish performance of the economy brings into question the wisdom of enacting fiscal austerity as the economy struggles to grow.