Consolidative Tone In FX Continues

The US dollar has a softer tone today, and it was that way even for the European PMI. The greenback eased further after the upside momentum faded yesterday. The heavier tone in Asia seemed spurred by a hedge fund manager’s call that Minneapolis Fed President, and among the most dovish members of the FOMC, Kashkari would be the next Fed chair.  

This was quickly followed by reported leaks of a short list of candidates, which included the likely suspects, Yellen, Cohn, Warsh, and Powell.  This may have seemed like new news in Asia, but in the US, even Powell’s inclusion is not a surprise.Indeed, as we have noted, Powell had moved into second place behind Warsh in the betting markets. Kashkari did not appear on the list. With the exception of the NY Fed, the skills set needed to be a regional Fed president may not be the same for the Chair. The President’s nomination is expected by the end of the month. Yellen speaks late in the North American session but is unlikely to address the nuances of monetary policy or her future in the welcoming remarks at a community bank event.  

Europe’s PMI is the main economic data points today. The eurozone services PMI rose to 55.8 from the flash reading of 55.6. It stood at 54.7 in August.It is the strongest since May. The composite was unchanged from the flash 56.7 estimate. It was a full point lower and is just off the peak of 56.8 seen in both April and May. The gains in new orders suggest good momentum going into the final quarter of the year. Among the large countries, Italy stands out for its weakness. The services PMI fell to its lowest since March, and the composite fell to its lowest since January. This would seem to warn that the political pressures as the new electoral law must be decided may intensify if the economy weakens.  

Spain’s readings were stronger than expected, and the composite snapped a two-month decline that had seen it weaken in August to its lowest level since January. The events in Catalonia, which accounts for about a fifth of Spain’s GDP, may be picked up in next month’s report. Of course, since the weekend’s events, everyone is urging both sides to de-escalate, but the Catalonians seem set to declare independence within 48 hours. The EU cannot mediate because it would give legitimacy to every region in Europe that wants to secede from the national state.