This weeks highly anticipated teleconference meeting only produced ‘sound bites’, allowing another day to be wasted and another day closer to default. The next Euro finance meeting is this coming Monday in Brussels. It’s here that the market again will hope for more clarity on a potential Greek third tranche timetable. The aggressive squeeze put on the weaker EUR shorts in the final sessions of the week has been caused by the Greek government believing that a “deal” is done. Failure to get a second +EUR130b bailout after next Monday’s Euro finance ministers meeting will again provide a market license to sell the single currency as Greece enters election season without funding.
Below are some other highlights of the week:
EUROPE
- EU: Greek parliament approves austerity measures in a late Sunday vote, temporarily allowing the EUR to retrace all the previous Friday’s losses. A majority of the two main parities voted in favor, although more than 40 MP’s from these parties either voted no or abstained.
- EU: Greece had to identify +EUR300m in additional austerity measures to offset pension reforms it rejected last week.
- EU: In after hours trading on Monday, Moody’s downgraded Italy and Spain and revised the outlook to negative for France and the UK’s AAA rating. Spain’s rating was cut to A3 from A1, Italy was lowered to A3 from A2 and Portugal was reduced to Ba3 from Ba2 with negative outlook. The ratings of Slovakia, Slovenia and Malta have also been cut.
- GBP: UK inflation moderated last month with headline inflation falling to +3.6%, y/y, from +4.2%. Core goods inflation fell to +2.6%, y/y, from +3.0% with a flat seasonally adjusted reading on the month. The drop in core was due to lower services inflation and suggests somewhat smaller inflationary pressure.
- GER: German ZEW surprised much stronger than expected with the expectations component jumping to 5.4 from -21.6 (highest level in 10-months). Current situation assessment increased to 40.3 from 28.4. This has been a less reliable indicator, but this strong pick up bodes well for this month’s PMIs and IFO due next week.
- EU: Euro-zone, IP contracted -1.1%, m/m, in December and in line with consensus. Meanwhile GDP data showed a sharper slowdown continued in the periphery. Portuguese GDP contracted -1.3%, q/q, in Q4 following a -0.6% decrease in Q3. Greek on the other hand GDP fell-7% in Q4.
- HUF: Hungarian headline inflation spiked to +5.5%, y/y, in January from +4.1%.The sharp rise is attributed to a VAT hike last month and the pass through effect from a weak currency. The market should expect the Central bank to see this as a ‘once-off’ price adjustment. Policy makers remain preoccupied with today’s deadline to respond to the EC objections to recent legislation on Cbank independence.
- EU: The Euro-zone economy contracted in Q4 (-0.3%, q/q) for the first time in two-and-a-half years, as nine member states posted a fall, while five entered a recession. This would suggest that the impact of the debt crisis continues to bite and it’s probably prudent to suggest the remaining regions, apart from Germany will follow in Q1. Germany remains the most likely outlier, but not an economy large enough to shoulder the rest of Europe. EUR bears continue to find better levels to short the region again.
- CNY: PBoC governor Zhou asserted that China specifically and the BRIC countries more generally are willing to support the euro area, but are waiting for the appropriate time to do this. China could support the euro area through the EFSF or IMF with funding from the central bank, China’s sovereign wealth fund, or China’s development banks.
- GRE: The three main party leaders have agreed to personally sign off on the latest austerity measures imposed by Troika. Final approval of the program is now not expected until next Monday’s Euro group meeting. The markets will then be watching and wondering what the uptake of the swap among investors will look like.
- GBP: The BoE inflation report showed inflation at around +1.8% in two-years under the assumptions that the Bank Rate moves in line with market interest rates and the size of the asset buying program remains at +£325b. The prediction is much higher that +1.27% forecasted last November. Less risk of further debt monetization means that the GBP can potentially attract more official flows. Sterling remains attractive as an alternative currency to the EUR.
- UK: The unemployment rate remained at +8.4%, while the claimant count rose slightly to +6.9k from +1.9k, a touch above the consensus forecast for +3k.
- HUF: The MNB introduced new credit facilities supposedly to facilitate an expansion in bank lending to the corporate and household sectors.
- CZK: The Czech Republic entered a recession in Q4, with a second consecutive contraction of GDP. GDP fell -0.3%, q/q, following a -0.1%, q/q drop in Q3.
- EU: General risk attitudes ebbed and flowed on Thursday, as fears that the second Greek bailout talks were showing signs of an impasse, pushed the EUR to a three-month low.
- Moody’s: The agency is reviewing credit ratings for 17 major financial firms, and that a new wave of downgrades is imminent.
- Fixed Income: Despite stronger than expected French and Spanish bond auctions demand midweek, periphery yields continue to tick higher.
- SEK: As expected, the Riksbank cut interest rates by -25bps to +1.50% followed by a dovish statement. With the Repo rate path revised lower, no further rate hikes are being priced in until 2014 at the earliest. Policy makers remain uncertain about future rate growth and have revised growth forecasts higher for 2014 while lowering near-term forecasts. Domestic inflation was weak last month with the headline rate falling to +1.9%, y/y, from +2.3%. Core-inflation also remains subdued at +0.9%.
- NOK: Norway’s mainland GDP grew +0.6%, q/q, in Q4, beating the +0.5% expectation.
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Despite the EUR’s sell off in the final trading session of the week, the single currency has managed to regain some lost ground against most of the G10 and EM currencies. Analysts agree that the “policy process and the firewall thats been built around Greece” have been contributing to the “excessive degree of benefit of doubt” which in turn has helped promote this move.
However, other factors in the background have also been aiding this trade. The dovish Fed message [...]
Read the full article on forexblog.oanda.com.
The loonie has finally broken out of that death grip range that we were beginning to become accustomed to midweek. At the time it seemed that everyone was afraid to do anything. However, once the risk adverse trading strategies again became in vogue, especially after the Euro finance minister agreed to hold back Greek aid, the dollar got its second wind and headed strongly north of parity. The risk reward play had short term players selling the CAD below parity. [...]
Read the full article on forexblog.oanda.com.
Analysts’ employment expectations were blown out of the water on Friday. NFP produced a stellar report, creating +243k new jobs, pushing the unemployment rate down two ticks to +8.3%. Risk has been quickly applied and added to in the markets. The loonie is a shining example of a growth currency outperforming, especially on the back of its own disappointing employment report. However, beware of the extremely bearish risk factors lurking in the background i.e Euro debt crisis, slowing global growth and Iran nuclear concerns, which remain largely ignored, before wagering it all on risk. It’s a good start to 2012 for the Obama administration, but not a trend just yet. The headline print has managed to produce some blood on the “street”, they had predicted a more bearish print.
Below are some other highlights of the week:
Americas
- USD: This week we saw incomes pick up during December, +0.5%, however, individuals chose to increase savings instead of spending, showing a caution that will likely keep the US economy in slow growth mode throughout 2012. November spending was unrevised at +0.1%.
- USD: Unexpected poor Case-Schiller Home Prices and an unexpected Chicago PMI managed to trigger some macro-money profit taking on the last day of the month. Case-Schilller November 20-city HPI fell -1.3%, m/m. The housing market remains sluggish despite lower prices and interest rates, an abundance of foreclosures and tighter mortgage requirements.
- USD: Chicago PMI was 60.2 compared with a forecast of 62.2. The forward looking component, the new order index, dropped in January to 63.6 from 67.1.
- USD: US January consumer confidence retreats to 61.1 from 64.8, giving back some of the huge gains witnessed over the past two-months. The fallback was concentrated in consumers views of the current economy. The present situation index (current economic indicators) dropped to 38.4 from a revised 46.5-“consumers are more upbeat about employment but less optimistic about business conditions and their incomes.”
- CAD: The Canadian economy shrank for the first time in six-months, dragged down mostly by a decline in energy output (oil and gas fell -2.5%), down -0.1% to +CAD$1.27t in November. The BoC released forecasts from two-weeks ago was for GDP growth to slow to +2% in October through December from +3.5% in Q3.
- USD: ADP reported that Private Sector Jobs with small businesses lead the hiring +95k. However, the December print was revised lower to +292k from +325k. Its a “slow and steady pace” that could bring down the unemployment rate, but not rapid enough to return payrolls to their pre-recession peaks anytime soon.
- USD: January ISM rises near to expectations of 54.1, proof that growth picked up last month. Digging deeper, prices gained ground after contracting in December, and hiring grew at a slightly slower pace. Factories continue to be a consistent contributor to overall growth.
- USD: The number of US workers filing new claims for unemployment benefits declined last week (-12k to +367k), continuing the mostly improving trend seen in nine-months. The four-week moving average decreased by -2k to +375,750, remaining below that psychological +400k benchmark that’s required to add jobs to the economy.
- USD: In his House Budget Committee testimony this week, Bernanke has not changed his tune, again stating that the economy has shown signs of improvement while remaining vulnerable to shocks, and he called on lawmakers to reduce the long-term US budget deficit.
- USD: Dallas Fed Fisher (nonvoter) reiterated his opposition to further QE. He said that QE3 is not needed and that it would complicate the eventual tightening policies.
- CAD: Employers hired far fewer workers than expected in Jan (+2.6k vs. +23k) and the jobless rate rose unexpectedly to +7.6% from +7.5%. The data reflects an economy that’s slowing and is consistent with the BoC keeping rates unchanged. Despite creating +129k jobs last year-growth was in the first six-months. (Full-time jobs declined by -3.6k, part-time rose +5.9k, private and public sector increased by +39k while self-employed fell-37k).
- USD:NFP produced a stellar report, sideswiping most analysts expectations. Payrolls increased by +243k, m/m, allowing the unemployment rate to ease two-ticks to +8.3%. The breakdown saw manufacturing gain +50k, services +162k and the Government eliminate-14k positions. The hourly income increased +0.2% while the number of hours worked remained unchanged at +34.5.
Plans for the Greek Private Sector Involvement remain a source of considerable uncertainty for peripheral markets, and the inconclusive result of negotiations over the past few days will leave the EUR and risk complex vulnerable to a large correction. However, the EU economic and monetary commissioner has indicated that authorities are very close to concluding their talks, either later today or over the weekend. Will the market add to the risk trades that have been applied since the Fed, earlier this week, increased its “free money” term length by 18-months? So far it’s been too tempting for the market to refuse and risk is being added accordingly.
The mixed signals from the Euro-zone debt market means investors need to tread with caution. Thus far, ECB liquidity has boosted demand for Spanish and Italian debt. The same cannot be said for Portugal. Peripheral bond yields have resumed their collapse this week, with Italian 10-year yields down -18bp to +5.84%, a long way from that +7% imploding benchmark. Portugal remains the outlier, with yields still under upward pressure. Perhaps if China invested in Europe we would not care so much?
Below are some other highlights of the week:
EUROPE
- EUR: Greek talks were expected to show something of substance last weekend. Not unexpected, this week began with Greece failing to yield agreement on the public sector involvement. Negotiators have been squabbling over the coupon that restructured bonds will carry.
- EUR: The single currency opened lower in the Chinese New Year and despite all the negatives, soared through last weeks highs allowing the techies to start talking about outside weekly reversals as the currency remains elevated.
- EUR: Analysts expect that even a successful conclusion to discussions would still leave the actual degree of private sector uptake unclear. EUR bears are still looking for that top, as default risks will not fully ‘abate’.
- FRF: French January business confidence surprised weak, falling to 91 from 94. The market had been expecting a small uptick, especially after the German IFO and EU PMI prints.
- EU: Portuguese debt worries have resurfaced to add to Greek default concerns.
- EU: Finance Ministers reject Greek debt swap offer, coupon demands too high.
- S&P’s Chambers: Greece ‘In all likelihood’ is down to a selected default. However, this default is not expected to destroy the credibility of EMU.
- EU: Euro-zone flash PMI’s came in firmer than expected with the composite back above 50 after four-months in contraction territory. This suggests that the region ‘should avoid a collapse in output’ and another quarter in the GDP ‘red’. Manufacturing PMI rose to 48.7 from 46.9 and services PMI rose to 50.5 from 49.0.
- GER: Their numbers were strong with manufacturing PMI at 50.9 and services PMI at 54.5. Big picture, data should help the Scandis and CE3 currencies.
- ESP: Spain saw strong demand at its bill auction. Spanish Treasury sold +EUR2.51b of 3-and 6-month bills. The bid-to-cover was high in both issues.
- EU: With Greek PSI negotiations inconclusive, the IMF is pushing for the ECB’s to take a haircut along with PSI as a means of distributing losses back to governments. However, the ECB and German coalition remains opposed to taking a loss on ECB holdings. Expect the heavy peripheral issuance schedule to remain a key factor in keeping the bulls on their toes.
- GER: German ifo surprised higher with the expectations component at 100.9, above the consensus for 99 and up from 98.6 previously (the third consecutive rise) and suggests a GDP growth rate of +0.5% q/q.
- GBP: UK GDP contracted more than expected in Q4, down -0.2%, q/q, vs. -0.1%. The weakness was driven mainly by soft industrial production in October and November and poor services at the start of the quarter.
- GBP: BoE minuets deferred the decision on more QE until next month, as expected. The assessment on the economy was somewhat less pessimistic as members judged the most serious downside risks have abated. However, others understood that the “risks of undershooting the target meant an expansion of the QE program is likely to be required”.
- FOMC: FX risk has rallied following the Fed’s shift to a more dovish policy stance. With US yields holding on to post meeting losses and pricing of tightening being pushed further out in the future has increased the appeal of EM FX.
- HUF: Hungary sold HUF +48b worth of bonds (+13b more than expected). This would suggest that market perception of HUF risk has improved. PM Orban has softened his stance on recent legislation and indicated that he is willing to adjust their policies in order to win financial backing from the EU and IMF.
- SEK: Manufacturing confidence surprised soft, falling to -14 vs. -11. Analysts believe that weak growth and the recent sharp moderation in core-inflation allows for a rate cut by the Riksbank at the next meeting.
- EU: Peripheral bond yields have resumed their collapse, with Italian 10-year yields down -18bp to +5.84% (Friday Morning). However, Portugal remains the outlier with yields still under upward pressure.
- EU: On Friday, Rehn indicated that PSI talks are very close to conclusion, either today or over the weekend.
- EU: Euro area M3 growth has slowed significantly to +1.6%, y/y, from +2.0%.
- CHF: Swiss KoF leading indicator dropped to -0.17 this month from +0.01 in December (ninth consecutive monthly decline and the first negative reading in two years). However, the release is at odds with the recent upward surprise in the PMI back above 50.
- Fitch: Downgrades Belgium, Italy and Spain.
- PLN: Poland recorded above consensus 2011 GDP growth of +4.3%, y/y.
Should continue to attract foreign capital and support the PLN.
“Key” surprises have ended up being the theme of this week. The Fed has extended the term of free money by 18-months and the door is now ajar for further QE. It’s the “when” that many appear to disagree with. It seems unlikely to be applied until after operation twist ends in June. QE2 and the ‘twist’ arrived after extensive debates and many months of weak data. In the medium term, both equities and commodities should continue to benefit from the idea that the Fed has better than even odds of performing additional QE.
US GDP, despite growing at a solid +2.8% in Q4, provided its surprise in the details. The mix of growth suggests weakness this quarter and beyond. The bulk of last quarter’s growth came from the inventory sector (+2% of the top-line). Real GDP ex-inventories were a poor +0.8%, the weakest pace in a year.
Below are some other highlights of the week:
AMERICAS
- CAD: Retail Sales rose a tad more than expected in November (+0.3% vs. +0.2%). However, it was the smallest of four consecutive monthly gains, on increased sales of gas and clothing. Sales rose to +$38.7b slowing from a revised +0.9% increase in October. Sales volume at +0.5% was also the fourth straight increase.
- USD: Obama’s campaign begins. In the State of the Union address he called for the creation of a trade enforcement division to investigate unfair trade practices, an end to tax deductions related to US company closures of facilities in the US for relocation abroad. He also announced plans to provide financing for US firms competing with overseas firms receiving state financing.
- USD: December Pending Home Sales (-3.5% to 96.6) fell from its 19-month high print the prior month. The results were +5.6% above the December 2010 point.
- USD: Weekly crude inventory report increased by +3.6m barrels last week to +334.8m barrels.
- FOMC: The Fed surprised markets mid-week by extending its contingent commitment to low policy rates through 2014 (an extension of 18-months). In their transparency approach, the FOMC central projections showed only 6 of 17 committee members anticipate no easing before 2015.
- USD: December durable goods orders firm with a +3% increase and a +2.1% ex-transport print. This supports recent manufacturing survey’s that the sector is regaining some momentum.
- USD: As expected, seasonally adjusted initial unemployment benefit claims contracted upwards last week to +377k, up +21k w/w. The less volatile four-week average stands at +377.5k. Continuing claims now at +3.55m is more consistent with a +8.6% unemployment rate.
- USD: December new home sales unexpectedly fell -2.2% to +307k, well below consensus estimates of +320k. It’s disappointing data on the back of other recent housing indicators having been positive. The data suggests that the market cannot be confident of a strong and sustained boost to GDP despite lower mortgage rates.
- USD: First reading of the US Q4 GDP did not live up to hype. Economists expected +3% and they got +2.8%, however, still a notable improvement from the +1.8% in Q3 print.
- USD: The belief that more jobs are to be had pushed the UoM consumer sentiment higher to 75 from 74. Sentiment has been expanding for five-months; stronger payrolls lead to stronger sentiment.
- USD: UoM inflation expectations edged higher to +3.3% at the end of January from +2.7% earlier in the month.
Other regional data and policy innovation has mostly been positive for the Asian region this week. The Fed’s surprise extension of its commitment not to raise US rates for another 18-month’s, until late 2014, “should be the key to medium-term development”. Yen is expected to be the natural beneficiary of the latest dovish rhetoric by Bernanke and company and monetary easing by other G10 members. The lack of attractive yield opportunities complicates Japans current account recycling efforts. The stronger than expected Euro area flash PMI’s this month should be Asia’s strongest macro support (it suggests that the regions exports have ‘bottomed out’). Analysts historically use this indicator as a bellwether for Asian currency appreciation.
Below are some other highlights of the week:
ASIA
- CNY: Chinese New Year of the Dragon begins.
- AUD: Because of the Chinese Holidays, markets down-under were vulnerable to illiquid pockets this week.
- AUD: The IMF has warned that Aussie banks might need “tougher capital requirements.”
- JPY: It was no surprise that the BoJ cut growth forecasts at this weeks monetary meeting, while maintaining the policy rate (+0.05%) and leaving the QE program unchanged. Policy makers have revised down the country’s growth outlook for 2011 (from +0.3%, y/y, to -0.4%) and 2012 (from +2.2%, y/y to +2.0%) attributing the slowdown to the overseas economies and the retroactive revision of GDP stats.
- JPY: Their inflation metrics remain unchanged, believing that the global financial markets, US balance sheet adjustments and price stability in the emerging economy, all represent risks to Japanese growth. What about the yen? It’s a currency that is likely to continue to “benefit from policy convergence and risk aversion.”
- INR: The RBI held the repo rate unchanged at +8.5% (as expected), however, they unexpectedly lowered the cash reserve ratio to +5.5% from +6.0% (It’s first ease in nearly three-years). Analysts expect this to add approximately +INR320b into the economy.
- INR: The RBI also revised this years growth forecast lower to +7% from +7.6%.
- AUD: Australia headline CPI was flat in Q4 (forecasted for a +0.2%, q/q rise) due to a sharp fall in fruit prices. The RBA’s trimmed mean measure of CPI inflation was +0.6%, q/q, and the weighted median was +0.5%. Both are running at +2.6%, y/y, after some upward revisions to Q3 numbers. However, with core prices in the middle of RBA’s +2-3% target band suggests further easing is not required just yet. The market expects the RBA to cut rates +25bps because of Euro woes.
- JPY: Japan’s December’s trade deficit rose to -JPY567b, pushing the 2011 trade balance into a deficit of JPY2.5trn (the first annual trade deficit in 20-years). Analysts expect this trend to continue for 2012. Euro uncertainties and global central banks monetary easing will continue to make it hard for any current account surplus to be recycled offshore. With repatriation of overseas assets remaining strong, the currency should remain under pressure longer term.
- PHP: Philippine imports remained at a high, +$4.9b in November, pushing the trade deficit -$0.7b wider to -$1.6b. Remittances continue to support the PHP and a current account surplus. Expect policy makers to remain reluctant to allow their currency outperform in the region.
- SGD: Singapore CPI inflation was at +5.5%, y/y in December, in line with the consensus forecast. Inflation is expected to remain high through the next one to two quarters. This scenario would suggest that the MAS to maintain the SGD on its current mild appreciation path.
- FOMC: FX risk has rallied following the Fed’s shift to a more dovish policy stance. With US yields holding on to post meeting losses and pricing of tightening being pushed further out in the future has increased the appeal of EM FX.
- KWN: With EM Central Banks more active in reducing the appreciation of their own currencies, the BoK is supposedly restricting KRW appreciation to about five won per day.
- NZD: RBNZ remains on hold at +2.5%, as widely expected. No rate move is priced in until Q4.
- KRW: GDP growth slowed to +3.4%, y/y, in Q4 vs. +3.5%. The underlying details were soft, with domestic demand and investment continuing to be weak. Net export growth also slowed.
- SGD: In Singapore IP rose +12.6%, y/y, in December, much higher than the consensus forecast of 6.4%yoy. The MAS is expected to keep the SGD on an appreciating trend.
- KWN: Korea’s manufacturing business survey rallied +2pts to 81 in January, and still below the expansionary level of 100. Analysts expect the index to rise in line with the recovery in global PMI’s. This would suggest stronger export growth and support for the won.
- NZD: New Zealand recorded a trade surplus of +0.3b in December, this after four consecutives months in the red. This was achieved on the back of increased dairy exports. In December exports rose +13% while imports fell +1.6%. For 2011, the trade surplus was largely flat at around +1.1b. Expect further Kiwi appreciation to hurt exports. Governor Bollard at the RBNZ said he is comfortable with the current market pricing of no rates hike for the year ahead.
Can we shout “soft landing” loud enough? That is what Europe et al. are praying for from the “Red Rocket,” China. As their economy slows and key export partners struggle more than ever, the government must ensure a soft landing. The call must be fiscal stimulus driven with one priority, improve domestic consumption.
Policy makers seem to agree and are determined to push ahead with shifting the country’s growth drivers away from exports and towards personal spending. The PBoC continues to gradually ease policy. The market should not expect to see a repeat of 2008 when authorities pumped the equivalent of $630b to shield their “empire” from recession. This time around they are expected to be target selective.
Below are some other highlights of the week:
ASIA
- EUR: The single currency is beginning to lose support from foreign Cbanks. Reserve data for the 4Q in 2011 reveals a weakening in reserve accumulation as compared to previous years. The ‘build (buy EUR’s) to hold down local currencies was nearly “zero”-resulting in a change of global asset prices.
- CNY: China reported 4Q GDP growth of +8.9%, y/y, higher than the consensus forecast of +8.7%. For full year 2011, year-over-year, growth was +9.2%, down slightly from the +10.4% growth in 2010, supported by robust December macro-data. Retail sales growth rose to +18.1% in December, up from +17.3% in the prior month.
- JPY: Japan’s Finance Minister Azumi indicated that the BoJ is monitoring the EURJPY rate as it continues to print record lows.
- IDR: Bank of Indonesia widened the lower end of their inter-bank rate to +200bps, that is similar to a -50bps cut. With BI continuing to ease monetary conditions and the current account now balanced leaves the IDR more vulnerable to capital flow weakness.
- CNY: There have been reports from China indicate the RRR for banks in Guizhou has been lowered. It seems that authorities want to continue to ease selectively following the robust 4Q data.
- MYR: Malaysia’s inflation fell to +3.0%, y/y, in December from +3.3%. Analysts note that robust domestic demand points to Bank Negara Malaysia keeping policy rates on hold.
- IDR: Indonesia’s credit rating was raised by Moody’s to investment grade at Baa3. Along with Fitch’s support, this can potentially increase portfolio inflows going forward, a positive for the IDR in the medium term.
- AUD&NZD: Poor Aussie employment data (-29.3k in December, below consensus for a +10k gain) is supporting expectations of a further RBA cut (-25bps in February) and a weaker than expected CPI by the Kiwis (+1.8%, y/y, versus the +2.6% forecasted and down sharply from +4.6% in Q3) has put the antipodean currencies on the back foot medium term.
- PHP: Bangko Sentral ng Pilipinas cut policy rates -25bp to +4.25% as expected. Easing inflation has allowed the Cbank to commence easing to support growth. Ample liquidity allows the easing to have a minimal impact on the currency.
- CNY: China’s 2011 fiscal revenue rose +24.8%, while fiscal spending only rose +21.2%. The HSBC flash Chinese PMI was roughly flat in January at 48.8. The market believes the results to have been biased by the by the Lunar New Year.
- THB: Thailand’s export growth was better than expected at -2%, y/y in December vs. -10% expected. Import growth surged to +19.1%, y/y, from -2.1% in November. The trade deficit widened to a record high of +$2.1b. The market expects the floods to continue put pressure on the trade balance. This will obviously affect the THB
Should we be questioning if US data is beginning to top out? This week, US releases were less than enthusiastic, with jobless claims rising smartly and retail sales disappointing. The steady improvement in initial jobless claims rose a rather disturbingly large +24k last week, rising from a modestly upward revised +375k to +399k. Are we to see a large downward revision to the next NFP report? Employment statistics is to play a major role in this year’s Presidential race and to Obama’s reelection campaign. Up to this point, a notable improvement in US data has been particularly helpful for currencies geared to US and global growth. With the Fed still committed to stable policy through mid-2013, the dollar is expected to remain a good funding currency for risk trades.
Below are some other highlights of the week:
AMERICAS
- CAD: Monthly building permits fell less than expected in November, -3.6% vs. -3.8%, (fourth decline in five-month) as lower planned construction of institutional, industrial and commercial building affect the first gain in residential building plans.
- USD: US whole sale inventories rose less than forecasted in November (+0.1%) as distributors struggled to keep up with demand, a sign gains in manufacturing will keep the economy growing. Inventories followed a +1.2% revised gain in October.
- CAD: CMHC housing starts was +200k units in December, up from +185.6k units in November 2011.
- CAD: Canadian monthly new house prices rose slightly more than expected in November for the largest gain in six-months. Prices were up +0.3%, m/m and +2.5% y/y.
- USD: Softer US data disappoints all markets. December retail sales rose +0.1%, ex-autos it declined -0.2%, completing the first fall in 18-months.
- USD: Weekly US jobless claims benefits climb past expectations, surging +24k to a seasonally adjusted +399k.
- USD: US trade deficit widened for the first time in five months, +10.7% to -47.7b vs. -45.5b. Rising oil prices lifted imports while exports to the Euro region slumped. The trade gap with China narrowed -4.3% to 26.87b
- CAN: Posted a surprise trade surplus in November, +$1.07b from a -$0.5b deficit in October. Exports increased +3.2% (+1.7% was a price increase and +1.6% a volume increase).
- US: Consumer confidence came in stronger than expected. US preliminary January Michigan CSI increased by 4.1 point to 74, a fifth straight improvement from an August market low of 55.7
For the first time sine the Asian crisis, China’s FX reserves fell in the last quarter of 2011. A $20.6b slip may only be a blip in China’s hoard of $3.18t in reserves. However, a reduction of this size has not been seen in nearly 14-years. Does it signal a change in sentiment in the Chinese economy? A fraction of the decline is due in part to the EUR’s depreciation, coupled with a smaller trade surplus between the regions. However, the most significant cause of the decline can be attributed to the flow of capital out of China. The Shanghai composite index fell -21% last year and as long as property prices keep falling, hot money has enough of a reason to want to exit!
Below are some other highlights of the week:
ASIA
- AUD: Retail Sales stalled in November against consensus for a modest +0.4%, m/m, rise. Analysts believe further weakness in the coming months will have the market pricing in further RBA easing. Futures market is already pricing in a-25bp cut at the February meeting.
- CNY: China reported ‘new’ Yuan loans totaling +CNY640b in December, up +15.8%, y/y, and above the consensus estimate of +CNY575b.
- NZD: New Zealand trade data implied a small surplus of +NZD30m seasonally adjusted in November, with imports and exports growth broadly in line with consensus. Analysts fear for weaker trading partners’ growth. Softer demand may lead to further deterioration in NZ’s trade balance over the coming months.
- TWD: Trade surplus fell to $+2.3b in December from +$3.2b in November. Slowing exports caused the trade balance to deteriorate more than expected i.e Exports to Germany fell -16%, y/y (Third consecutive monthly decline).
- CNY: China’s export growth fell to +13.4% in December from +13.8% in November, while imports were on the weak side, rising by only +11.8%, y/y, compared with +18% consensus and +22.1% in November. This suggests softer domestic investment demand and weaker commodity prices. The trade balance recorded a +$16.5b surplus in December.
- AUD: Australia building approvals rose +8.4% in November (after two months of over -10% declines). Perhaps the domestic housing market is benefiting from the RBA rate cuts.
- PHP: Exports fell -19.4%, y/y, in November. Weak exports and tame inflation supports market expectations for a – 25bp cut from the Cbank in March.
- MYR: IP rose +1.8%, y/y, in November, weaker than the +3.5% consensus expectations.
- PBoC: Comments from their head of research bureau suggests “inflation pressures are unlikely to ease quickly”-perhaps no monetary easing anytime soon.
- MYR: Export growth slowed to +8%, y/y, in November from +15.4% the previous month. The market anticipates the central bank to keep MYR broadly in line with other regional currencies amid the euro crisis.
- CNY: Inflation slowed to +4.1%, y/y, in December from +4.2%. The Chinese government have warned against expectations for inflation to ease quickly and reiterated that stabilizing prices remained important on the government’s agenda. The market anticipates the PBoC to cut the reserve ratio in coming months to accommodate growth.
- JPY: Japan’s current account surplus fell to +JPY138b in November, well short of the consensus estimate of +JPY248b. Note surplus erosion can help ease some pressures on the currency, compression of G10 “yield differentials and fragile risk appetite should keep the yen well supported in the near term”.
- INR: India’s industrial production surprised on the upside, rising +5.9%, y/y, against a modest +2.1% growth.
- IDR: Bank Indonesia (BI) left policy rates unchanged at +6%, most likely because of a rupiah. With inflation under pressure to fall, market is pricing in a -25bp ease at the next meeting.
- KWN: The BoK left policy rates unchanged at +3.25% as expected, citing larger downside risks to global growth and subdued domestic demand. The market expects policy makers will ease in 2012, but only by -25bps given the lack of inflation pressure.