Consumer spending probably rose in August for a fourth consecutive month as demand for autos reached almost six-year high, economists said before reports this week. Purchases increased 0.3 percent after a 0.1 percent advance in July, according to the median forecast in a Bloomberg survey of 64 economists before Commerce Department data Sept. 27. Other reports may show a pickup in orders for big-ticket items other than transportation equipment and an increase in new-home sales.
For five years, the Fed has focused on home-grown challenges, including financial turmoil and the recession and surge in unemployment that resulted. The biggest threat to U.S. expansion under its next chairman may lie outside its borders as China and fellow emerging markets show signs of weakening. Vice Chairman Janet Yellen is the top candidate to replace Bernanke if he steps down in January, and then would become the top monetary-policy maker as markets open wider for trade and finance and regulators seek more cross-border coordination in monitoring banks.
A Chinese manufacturing index rose to a six-month high in September, signaling that a rebound in the world’s second-largest economy is gaining steam. The preliminary reading of 51.2 for a Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics compared with a 50.9 median estimate from 14 economists surveyed by Bloomberg News. The gauge was at 50.1 in August.
Angela Merkel’s third term, after her overwhelming election victory yesterday, is likely to force a decision on where to spend political capital: on Europe’s ills or Germany’s. While Germany ranks fourth in the global competitiveness study by the World Economic Forum thanks to policies enacted by her predecessor Gerhard Schroeder, the challenges are piling up. Merkel must address the aging population, shortfalls in education and infrastructure spending and ballooning pension costs, say policy makers, economists and investors.
EUR/USD: The EUR/USD traded higher last week after the Federal Reserve said that it wanted to see more evidence of a sustained economic recovery before it adjusted the scale of its bond buying program and after some mixed data were released in the U.S. Today, the pair was trading slightly lower at 1.35288 at the time of writing as market participants started to analyse the comments of St. Louis Federal Reserve President James Bullard. He indicated that the U.S. central bank could start to taper its stimulus program in October on Friday. However, sentiments remain fragile after Angela Merkel won an overwhelming endorsement from German voters. She is most likely to govern in a grand coalition with the Social Democrats, so that’s a slight euro positive because the government would be somewhat friendlier to the peripheral nations in the currency bloc. Moreover, a Chinese manufacturing index rose to a six-month high in September, signaling that a rebound in the world’s second-largest economy is gaining steam. Investors also turned cautious as some Manufacturing PMI will be released in the Euro area and the ECB President Draghi will make his speech. Later in the day; the FOMC Member Dudley and Fisher will make their speech. Investors should stay cautious and wait for the Manufacturing PMI data in the Euro area and the ECB President Draghi speech to come on market to get visibility. Ahead of the coming week, other significant events likely to affect the markets are: Tuesday; the Ifo Institute will release a closely watched report on German business climate. On the other, the U.S. will release private sector data on house price inflation, as well as a closely watched report on consumer confidence. Wednesday; the euro zone will release the results of the Gfk index of consumer climate, while the U.S. will release data on durable goods orders, in addition to a report on new home sales. Thursday; The U.S will release the weekly report on initial jobless claims, as well as final data on second quarter growth and private sector data on pending home sales. Friday; in the euro zone, Germany will produce preliminary data on consumer inflation, while France will release a report on consumer spending. ECB President Mario Draghi will speak at an event in Milan. Later in the day, the U.S. will round up the week with revised data on consumer sentiment and inflation expectations from the University of Michigan, as well as data on personal income and expenditure. Volatility is expected this week. Investors should also keep an eye on the latest development in Syria for additional visibility. The resistance level is at 1.36961 and the support level is at 1.33158 on the weekly chart.
USD/JPY: The dollar touched one-week highs against the yen on Friday after a senior Federal Reserve official indicated that the bank could start to reduce its stimulus program in October. Today, the USD/JPY was trading slightly lower at 99.105 at the time of writing after a Chinese manufacturing index rose to a six-month high in September, signaling that a rebound in the world’s second-largest economy is gaining steam. However, trading seems sticky as market participant jumped on the sidelines ahead of some important Manufacturing PMI data in the Euro area and the ECB President Draghi his speech, which are likely to affect general sentiments for risky assets and weigh on the USD. Later in the day, the FOMC Member Dudley and Fisher will make their speech. FOMC members are responsible for setting the benchmark interest rate and their speeches are closely watched for indications on the future possible direction of monetary policy. Their comments may determine a short-term positive or negative trend. Investors should adopt a wait and see strategy on the pair. Ahead of the coming week, other significant events likely to affect the markets are: Tuesday; The U.S. will release private sector data on house price inflation, as well as a closely watched report on consumer confidence. Wednesday; The U.S. will release data on durable goods orders, as well as a report on new home sales. Thursday; The U.S. will release the weekly report on initial jobless claims, as well as final data on second quarter growth and private sector data on pending home sales. Friday; Japan will release data on consumer price inflation. The U.S. will round up the week with revised data on consumer sentiment and inflation expectations from the University of Michigan, as well as data on personal income and expenditure. Investors should stay very cautious on the pair. The resistance level is at 100.543 and the support level is at 97.689 on the weekly chart.
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