Euro gaps lower against Dollar as another week starts. Markets seem to be dissatisfied with Germany election result even though Angela Merkel won her fourth term as Chancellor. Nonetheless, loss in the common currency is limited and it quickly recovers. Meanwhile, Kiwi also trades lower after indecisive election results. Yen is mildly weaker and risk sentiments are steady even though US President Donald Trump continued his verbal exchanges with North Korea officials. Yen traders' are probably more on Japan Prime Minister Shinzo Abe's press conference for snap election, rather than the words of the two sides that are on "suicide mission". Sterling is mildly firmer as the fourth round of Brexit negotiations starts.
Euro lower on plunge of support for CDU/CSU
Angela Merkel won a fourth term as German Chancellor after Sunday's election. But vote for her CDU/CSU bloc suffered heavy decline to 32.7%, down 8.8% from 2013. That's also the worst result since 1949. Main opposition Social Democrats scored 20.2%, the worst ever result. On the other hand, the anti-immigration Alternative for Germany won 13% of vote, up 8.7% from 2013. Free Democrats got 10.5% and Greens got 9.4%. The risk now is that Merkel will need to form a coalition with at least two other parties, and that is seen as some uncertainty for the near term. Also, the better than expected results for AfD and the plunge in CDU/CSU reminded people that populism remains a threat in European Union.
Kiwi dips mildly on indecisive election
New Zealand Dollar dips mildly today, in reaction to the indecisive election held on Saturday. The ruling centrist National party won 58 seats in a 120 seat parliament. Center-left Labour won 45 seats. New Zealand First won 9 while Greens got seven. Rightwing ACT got 1 seat. Without outright majority, the National could now take a few weeks for form a coalition. But the overall results are pretty much in line with pre-election polls. So, the impact to markets should be minimal.
Fourth round of Brexit negotiation to start
The fourth round of Brexit negotiation between UK and EU will start in Brussels today. Also, there will be another round of Brexit talks between Scottish and UK governments in London. Prime Minister Theresa May called for a two year "implementation period" on Brexit, and during the time, it's almost like all status quo. UK will continue to have access to the single-market and pay into EU budgets. UK would even accept new EU regulations through to 2021. Such a proposal attracts criticism from May's own MPs. The criticism mainly center around payment to EU an European Court of Justice jurisdiction.
Japan PMI manufacturing rose to 52.6
Japan PMI manufacturing rose to 52.6 in September, up from 52.2, but missed expectation of 53.4. Nonetheless, that's the 13 straight month of expansionary reading, and the highest level since May. IHS Markit principal economist Annabel Fiddes noted that "firms signalled stronger expansions in both output and new orders amid reports of firmer demand both at home and abroad" And, "the strong end to Q3 bodes well for production in the coming months, with business confidence also perking up slightly since August." Japan Prime Minister Shinzo Abe is widely expected to announce a snap election for October today, to take advantage of the rebound in his popularity. Abe will hold a press conference at 0900GMT..
Looking ahead
German Ifo business climate in the main focus today. RBNZ rate decision is a main feature in the week and it's widely expected to stand pat. Some important economic data will be featured including Eurozone CPI, Japan CPI, Canada GDP and US durable goods and PCE. But the highlight is likely on details of US President Donald Trump's tax plan. Here are what are's expecting for the week ahead:
- Tuesday: News Zealand trade balance, NBNZ business confidence; BoJ minutes, corporate service price; German import price; US S&P Case Shiller house price, new home sales, consumer confidence
- Wednesday: Swiss UBS consumption; Eurozone M3; US durable goods, pending home sales
- Thursday: RBNZ rate decision; German Gfk consumer sentiment; Eurozone confidence indicators; German CPI; US Q2 GDP final, jobless claims; trade balance
- Friday: Japan unemployment, CPI, retail sales, industrial production, BoJ summary of opinions; China PMI manufacturing; German retail sales, unemployment; Swiss KOF; UK Q2 GDP final, mortgage approvals, M4; Eurozone CPI flash; Canada GDP; US personal income and spending, Chicago PMI