There was a ‘small’ percentage of a chance that the BoJ was to continue along the easing path earlier this week after last month’s surprise announcement. However, Governor Shirakawa refrained from expanding monetary easing to counter deflation, resisting pressure from his fellow politicians who only days ago rejected a nominee for the policy board. The BoJ kept the key interest rate between zero and +0.1% and left its +JPY30t asset-purchase fund and +JPY35t credit-lending program unchanged. Post announcement has seen fresh JPY cross weakness, especially against the EUR. The Governor has promised that the BoJ will conduct a particularly careful examination at their next meeting. The market is interpreting this as suggesting a high probability that the BoJ will implement some sort of easing measures when it announces its Outlook report on 27 April.
Below are some other highlights of the week:
Asia
CNY: China’s CPI inflation rose to +3.6%, y/y, in March from +3.2% in February, higher than the consensus forecast for +3.4%. However, inflation has stayed subdued, remaining below the psychological +4% for the second successive month. Analysts expect it to remain on the tepid side for the next six months. A small percentage of the market expects a -50bp cut in commercial banks’ reserve requirement ratio (RRR) later this month.
JPY: Japan’s current account balance returned to a surplus of +JPY854b in February. Market had been expecting a +JPY650b (sa) surplus. Being back in surplus, perhaps Governor Shirakawa needs to be more aggressive with the BoJ’s easing policy to weaken the yen? A tough ask in this risk aversion environment.
TWD: Taiwan’s exports fell -3.2%, y/y, in March, less than estimate (-4.5%). However, on a sequential seasonally adjusted basis, exports fell -10%, m/m, in March. Is this an emerging FX trend? The lack of signs of a more significant recovery in Asia exports is likely to weigh on Asia FX.
JPY: BoJ Governor Shirakawa refrained from expanding monetary easing to counter deflation, resisting pressure from his fellow politicians who last week rejected a nominee for the policy board. The BoJ have kept the key interest rate between zero and +0.1% and left its +JPY30t asset-purchase fund and +JPY35t credit-lending program unchanged.
CNY: China reported an unexpected trade surplus last month as import growth trailed forecasts, emphasizing the risks of a deeper slowdown in the world’s second-largest economy. Inbound shipments rose +5.3%, well below the +9% estimated. Exports increased +8.9% from a year earlier, providing us with a trade surplus of +$5.35b, compared with a projection for a -$3.15b trade deficit.
AUD: Aussie business confidence improved last month as the NAB business confidence index rose +2 points to reach +3 in March. Other data revealed that ANZ job advertisements increased +1%, m/m, in March to reach the highest level in nearly four-years, compared with a +3.3% rise in February.
Asia: Mid-week, risk appetite tried to make a timid comeback after a stronger than expected opening to the Q1 earnings season in the US, “interrupting a multi-day sell off across asset classes.”
JPY: Japan’s bank lending rose +0.8%, y/y, in March, a fifth consecutive increase following a +0.6% rise in February. Machinery orders surprised strong, up +4.8% in February after rising +3.4% in January.
AUD: The Aussie Westpac consumer confidence index fell -1.6% in April to 94.5 from 96.1 in March (its lowest level in eight-months). Home loans were down -2.5%, m/m, in February, compared with a revised -1.1% fall in January.
NZD: The New Zealand Institute of Economic Research business opinion indicator rose to 13 in Q1 from 0 in Q4 last year.
INR: The Reserve Bank of India this week reiterated its concerns on inflation and a widening current account deficit in a meeting with economists a week before its annual monetary policy review.
AUD: Aussie payrolls rose by +44k in March, more than the consensus forecast for +6.5k. The details were strong with both full and part-time employment rising on the month. The unemployment rate was unchanged at +5.2% after a +0.2 point rise in the participation rate to +65.4% and hours worked rose 9.5m. AUD yields rose in response to reduced pricing for RBA rate cuts. Do not be surprised that the RBA “is likely to err on the side of caution and cut rates -25bp at its May meeting”; and this despite the consumer inflation expectation rising to +3.3% in April from +2.7% in March.
CNY: China’s new loans rose a larger than expected +CNY1.01t vs. the consensus forecast for +CNY800b. Premier Wen and PBoC Governor Zhou have both been promoting lending, especially to SME’s in recent weeks.
NZD: Kiwi credit card spending fell by -0.2%, m/m, in March from a fall of -0.3% in February.
JPY: Japan’s Domestic Corporate Goods Price Index rose +0.6%, m/m, in March, up from a rise of +0.2% in the prior month. Growth in money supply, M2 and M3, has accelerated to +3.0% and +2.6% in March.
KRW: South Korea’s jobless rate fell to +3.7% in March from +4.2% in February. The fall was driven by a rise in service sector jobs.
CNY: Chinese data showed GDP growth slowing to +8.1% in Q1 from +8.9% in Q4 and below consensus expectations of +8.5%. It was the slowest pace of growth recorded in three-years. Add this report to some of the other regional poor numbers recorded this year and it seems the market will have to postponing or push out China’s bottoming out process beyond this summer. Again, the market will be raising the question of ‘hard or soft’ landing for the world’s second largest economy?
BoJ: Governor Shirakawa has vowed to pursue ‘powerful easing’ to overcome deflation.
SGD: The Monetary Authority of Singapore (MAS) surprised on the hawkish side on Friday, increasing the slope of the appreciation path and narrowing the policy bands of the SGD NEER. Analysts guesstimate that the new pace of appreciation is likely to be +2-3% per annum versus about +1-2% previously.
SGD: GDP rose an annualized +9.9%, q/q, in Q1, well above the market consensus for +6.8%. Activity was boosted by a near +15% rise in manufacturing production, while construction output jumped a whopping +25%.
KWR: The BoK kept the policy rate unchanged at +3.25% as widely expected. The statement acknowledged signs of moderate recovery in domestic economic growth and re-affirmed the central bank’s stance to bring down inflation expectations.
The EUR was the big looser this week, and this despite the dollar trying to give a chunk of it back on Friday. The currency nail in the coffin was this weeks latest Spanish auction. An auction that should ‘put to rest to any lingering doubts whether the LTRO related rally on peripheral debt is over.’ It was a bad auction, bad for debt markets and bad for the EUR. Spain happened to end up selling at the lower end of their range (EUR2.5b-3.5b), delivered product at higher average yields and a low bid-to-cover ratio point to investors “repricing periphery risk.” This is doing nothing for regional financial health perception. If anything, its making the ECB’s task even harder. The ECB kept rates on hold with no new news and no innovations from the meeting. On what is transpiring peripherally, expect markets to rebuild ECB easing expectations as their economies struggle. The game change has the markets looking to use upticks as fresh EUR selling opportunities as the underlying bias remains with the bears.
Below are some other highlights of the week:
EUROPE
EU: Euro-zone manufacturing PMI at 47.7 was unrevised from the flash estimate, confirming the fall from 49.0 in February. French PMI was revised substantially lower to 46.7 from 47.6 (lowest in three-years). German PMI was revised a touch higher, but at 48.4, the level is rather weak. Meanwhile in the periphery, PMIs picked up in Greece and Ireland and moved sideways in Italy and Spain. Overall, the levels remain in contraction territory.
GBP: UK manufacturing PMI rose to 52.1 last month, from 51.5 in February, firmer than the consensus expectation for a drop to 50.7. This is the highest number in a year and suggests that the UK economy is maintaining positive momentum at the end of Q1.
UK: According to Hometrack Housing, UK house prices rose +0.2%, m/m, in March, the first rise in 21-months.
CHF: Swiss manufacturing PMI improved to 51.1 from 49, above consensus for 49.5. This follows the better-than-expected KoF print last week. However, with inflation still in deflation territory, this should change little for SNB policy in the short term.
SEK: Swedish PMI moved sideways in March, weaker than market expectations. The details were also relatively weak with employment and domestic orders still below the 50 threshold. Will the SEK lose rate support on further negative data surprises?
CEE: March manufacturing PMIs staged a rebound in central Europe, in particular Hungary (up to 56.8 from 51.2) and Czech Republic (52.1 from 50.5), while Poland’s PMI returned above the 50-threshold.
TRY: Turkish GDP growth slowed in Q4 to +5.2%, y/y, from a revised +8.4% in Q3.
GBP: UK construction PMI rose to 56.7 from 54.3, much better than the 53.4 expected. Fundamentally, this should support Q1 GDP and help the UK avert technical recession. Many expect GBP to remain supported against mainland Europe over the short term, however, weak growth and low yields would not be a big supporter of GBP on a ‘trade-weighted basis.’
TRY: Turkey’s inflation rose +0.4%, m/m, in March, lower than the consensus for +0.6%. Despite the lower headline, analysts note that the run-rate of core-inflation has failed to improve last month. Last weekend’s energy price hikes should worsen the outlook for inflation.
EU: Germany’s ifo, France’s Insee and Italy’s Isat say that the 17-nation currency bloc contracted -0.2% in Q1and maintains a second quarter forecast of no growth. Technically, the 332m people using the single currency may suffer stagflation.
EUR: The hawkish shift in Fed policy expectations continues to weigh on risk appetite, with investors expressing their disappointment that the Fed is unlikely to launch another round of QE by buying back the dollar and offloading equities and shying away from debt products.
EU: The mid-week Spanish debt auction should ‘put to rest any lingering doubts whether the LTRO related rally on peripheral debt is over.’ It was a bad auction, bad for debt markets and bad for the EUR. Spain happened to end up selling at the lower end of their range (EUR2.5b-3.5b), delivered product at higher average yields and a low bid-to-cover ratio point to investors “repricing periphery risk.”
GER: German factory orders rose +0.3%, m/m, in February, below expectations for +1.5%. -January’s print was revised up, to -1.8% from -2.7%, but this still represents a large decrease.
EU: Euro-zone PMI services held up better than expected. The flash estimate was revised to 49.2 from 48.7, up from 48.8 in February. This also helped the composite PMI, which was revised to 49.1 from 48.7, now only marginally lower than the 49.3 print in February.
GBP: UK services PMI surprised very strong, rising to 55.3 in March from 53.8 previously, well above consensus for 53.4. The breakdown was also solid, with employment and new business prices up on the month. Analysts note that the strong print follows upside surprises in both the manufacturing and construction PMIs and suggests growth momentum picked up at the end of Q1. It is no wonder that Sterling is currently outperforming mainland Europe.
EU: EURCHF spot traded through 1.2000 momentarily due to technical and credit reasons. SNB floor back in play with global market focus on policy makers.
CHF: Swiss headline inflation declined further into deflationary territory to -1.0%, y/y, in March from -0.9%. The deflationary pressure came mostly from imported goods, which fell 3.6%, y/y, while domestic inflation is zero. Core-inflation remained at -1.2%, y/y, its lowest level since inception.
CHF: SNB FX reserve rose to +CHF237.5b March from +CHF227b in February.
GER: German, IP surprised very weak dropping -1.3% in February, below consensus for a -0.5%, m/m, fall. This more than reversed the +1.2% gain in March (revised lower from 1.5%mom previously). Part of the weakness can be attributed to the weather and a sharp drop in construction. Nevertheless, this casts some doubt over the strength of growth recovery in Germany particularly as manufacturing PMI dropped below 50 this month.
GBP: UK manufacturing production fell -1.0%, m/m, in February, well below consensus for +0.1%. Additionally, January’s print was revised lower to -0.3% from +0.1% previously. This suggests poor underlying growth momentum in the UK.
The immediate concern is that the slew of PMIs out early next week will suggest that the global recovery is stumbling, including in the US. Asia has the potential to trade on the weak side in this environment. There will be a risk of some unwinding of the recent rise in Asian yields if both the Chinese and US PMIs disappoint. By Monday, we could be trading in another risk aversion trading environment. The dollar has ended the week on firmer footing, a sign that month-end rebalancing and positioning has been completed , allowing investors to go back to trading fundamentals, which remain dollar positive. With the BoJ meeting twice in April, a percentage of the market remains bearish on Japanese yields as they price in policy easing at the second of these meetings.
Below are some other highlights of the week:
Asia
JPY: BoJ Governor Shirakawa warned of the risk of keeping interest rates low for too long. He said, “If low interest rates induce investment projects that are only profitable at such interest-rate levels, this could have an adverse impact on productivity and growth potential of the economy by making resource allocation inefficient.”
NZD: Kiwi trade balance was back in surplus of $161 m in February, following a revised deficit of $159m in January. Exports fell -6.9%, y/y, to $3.59b from a revised $3.73b while imports dropped -6.6%, y/y, to $3.43b from a revised $3.89b in February.
CNY: Chinese industrial companies had their first January-February profit decline since 2009 as slowing exports and a government campaign to cool property prices damped earnings. Year to date, industrial profits declined by -5.2%, y/y, in February, compared with a +25.4%, y/y, gain in January.
KRW: Korea’s consumer confidence rose to 101 in March from 100 in February, the highest level in four-months.
PHP: The Philippines’ imports fell -3.2%, y/y, in January following a revised -6.4%, y/y, decline in December.
KRW: Korea’s manufacturing confidence index rose to 85 in April from 84 for March, the highest level in six months. The non-manufacturing index for April advanced to 82 from 80 in March.
THB: Thai exports unexpectedly rose +0.9%, y/y, in February, stronger than the consensus forecast for a -5% fall and has helped push the trade balance back into a $530m surplus from a $1.1b deficit in January.
BRL: The Brazilian finance ministry has denied they were studying expanding the IOF tax to all FX transactions.
CNY: A Chinese state-owned company reportedly has defaulted on commercial paper worth 400 million yuan ($63.4m) maturing on April 15 as they are expected to miss their loan payments. Expect the government to likely intervene ahead of a contagion event.
JPY: Japan’s retail sales rose more than forecasted for February, up by +3.5%, y/y, after a +1.9% increase in January, the biggest advance in nearly two-years and a third straight monthly rise.
CNY: China has approved a pilot project to allow residents of Wenzhou to invest privately overseas as a test bed for future liberalization of the capital account.
KRW: South Korea recorded a current account surplus of +$639m in February following a revised -$969mn deficit in January.
NZD: New Zealand’s NBNZ business confidence index rose to 33.8 in March, up from 28 in February. Also, the NBNZ activity outlook index increased to 38.8 from 31.2 in February.
AUD: Aussies ABS quarterly job vacancies rose by +0.7% in February compared with a revised fall of -3.4% in November.
JPY: Japan’s IP unexpectedly fell -1.2%, m/m, in February after a +1.9% gain in January. Inflation, on the other hand, surprised to the upside with headline CPI rising +0.3%, y/y, while core-CPI (ex-food and energy) fell -0.6%. The market continues to sell JPY on dollar pull backs.
AUD: Aussie new home sales recorded a modest gain of +3%, m/m, in February following large drops in the previous two months.
NZD: Kiwi building permits fell -6.7%, m/m, in February after an +8.3% rise in January.
With risk appetite stabilizing, the EUR is ending the week influenced more by month and quarter-end demands and by various option strangleholds. The single currency has managed to hold up well in the global PMI shakeout and is on the cusp of entering a new technical risk phase, shy on fundamentals and heavy on the capital rebalancing requirements. The meeting of quarter and month-end action tends to muddy the FX market. Equities and fixed-income performance this quarter is expected to see pension funds next week have a significant rebalancing requirement, especially given the size of the stock market rally and fixed income sell off. Logic and history would also mean significant month-end forex flow. Support for other asset classes can only further “muddy the waters in determining whether we have moved into a new FX paradigm whereby risk sentiment is on the up” and loosing financed by the worlds reserve currency of choice, the USD.
Below are some other highlights of the week:
EUROPE
EUR: The single-currency started the week slowly, straddling the previous Friday’s closing prices and eyeing this week’s flash manufacturing and service PMI’s for direction.
ITL: Italian industrial orders declined -7.4%, m/m, in January, more than offsetting the strong +5.2% rise in the previous month. The weakness was broad based, with foreign orders down -7.3% and domestic orders down -7.6%. Analysts note that the weakness in orders is consistent with a very timid recovery in peripheral economies.
EUR: Most Sovereign yields in Europe remain moderately higher as risk aversion trading strategies dominate.
GBP: UK CPI inflation fell further in February to +3.4%, y/y, from +3.6%, but remained above the market consensus for +3.3%. Core-inflation also moderated to +2.4%, y/y, from +2.6%, but not matching the expectations for +2.3%. The market is predicting further declines to inflation. However, crude prices remain the outlier. Any upside inflation surprises are likely to reduce fears of further QE operations. This scenario should be supportive for GBP over mainland Europe.
UK: BoE’s Miles and Posen voted for a +£25b increase in QE according to the minutes from the March MPC meeting. The vote was split 7:2 to maintain the current program and as in February the two members preferred a larger stimulus. This reveals a continued dovish bias of the MPC. Many believe that another extension of QE is less likely.
GBP: UK public sector net borrowing disappointed with a larger deficit of -£15.2b vs. -£8.8b in the same month last year.
CHF: Swiss M3 supply growth slowed down in February, printing +6.4%, y/y, vs. a downwardly revised +7.3% in January. Analysts note that the decline is largely attributed to a lower growth rate in bank deposits, driving money supply and credit growth to their lowest levels since the SNB started intervening seven-months ago. Interestingly, mortgage growth continues to edge higher and reinforces the SNB’s concerns about “growing signs of imbalances” in the housing market. Dealers expect policy makers to remain accommodative unless inflation ‘undershoots its target’.
EUR: Troika published a generally positive review of the reform process in Portugal, and indicated that Monti’s Italian administration appears to be making progress on labor market reform, and this despite opposition from one of the three-major unions. FI dealers continue to cite lack of interest in periphery product, which is allowing yields to back up.
EUR: Risk appetite is waning after weaker global data was reported mid-week.
EUR: Is the Euro-zone walking towards a fiscal austerity based recession? Euro-zone PMI’s surprised very weak. Manufacturing was particularly disappointing, falling to 47.7 from 49.0 and well below consensus for an improvement to 49.5. Services were a little more resilient, with the overall euro-zone print at 48.7 down from 48.8, but below expectations for 49.2. The data suggest ECB is likely to remain dovish. The fact that Europe’s backbone, Germanys own manufacturing activity slumped back into contraction in March, is weighing heavily on investor sentiment, both for the EUR’s value and regional risk appetite. Expect Spain and Portugal to be thrust to fore of ‘this’ crisis again now that Greece is no longer, temporarily at least, providing the same sort of volatility.
GBP: UK retail sales ex-fuel fell -0.8%, m/m, in February, worse than consensus for -0.5%. The January release was also revised lower to +0.6% from +1.2%. Dealers still anticipate GBP to outperform mainland Europe.
TRY: The Turkish Central Bank (TCMB) has tightened liquidity in response to a weaker TRY. The bank decided not to provide one-week lira funding at its policy rate of +5.75%. Hawkish Central Bank governor rhetoric suggests that policy makers are unlikely to cut the upper end of the short term interest rate corridor at next week’s meeting.
ITL: Italian 10-year yields are ending the week up another +6bp and well-above +5% again.
EUR: French business confidence rose to 96 in March from 92 and above consensus for 93. The positive surprise is at odds with the weak PMI print. However, analysts note that the “series tends to lag the PMIs and the strength could be more reflective of the PMI pick up in February.”
GBP: The Nationwide consumer confidence index declined to 44 in February from 47 in January.
The Greek bond swap will be a topic of discussion at this weekend’s G20 meeting in Mexico City. OECD Chairman Gurria has stated that “Private sector creditors would face a worse outcome if they declined to participate in the bond exchange.” The goal of the bond exchange program is to shave EUR100 billion off soverign Greek debt.
United Kingdom’s GDP shrank by 0.2 percent in the fourth quarter which prompted the Bank of England Governor Mervyn King to qualify the recovery of the U.K. economy as “slow and uncertain.” King is trying to calm more optimistic views that see England avoiding two consecutive losing quarters as the outlook for the first quarter of 2012 is positive.
Adam Posen and David Miles from the BoE stood on the wrong side of a 7-2 Bank of England vote to raise stimulus by 75 billion pounds. The 275 billion pound target will get raised by 50 billion to 325 billion pounds. The reasons given for the lower figure were a more positive outlook on Europe than that at the end of 2011. Not the strongest endorsement after David Cameron’s comments during Davos.
Oil prices have reached an all time high in Europe and the U.K. (EUR 92.75 and GBP 78.53) due to supply concerns and a steady demand. US Dollar weakness has further propped up the price of oil as its the currency of denomination and countries where their local currencies have appreciated will feel a double pain as exports and energy costs both rise.
The European Union Economic and Monetary Commission released their 2012 forecasts for the 17-nation currency. The expectation is for the Eurozone to contract 0.3 percent. This is a revised forecast from their November figures of 0.5 percent growth for 2012
Greece has the difficult task of cutting its deficit from 160 percent of GDP down to 120 percent while in the midst of a recession. It is clear what the EU got out of this deal. Greece is likely to default as the social pressure will be too intense and the proposed tax increases and wage cuts will bring protest to the streets.
ASIA WEEK IN FX
AMERICAS WEEK IN FX
WEEK AHEAD
G20 Meetings
US Pending Home Sales
US Durable Goods Orders and CB Consumer Confidence
THe USD reached record lows against the EUR as the Greek bailout was finalized and crisis was if not adverted at least postponed. US Housing fell in January, but revisions to previous months’ data was better than originally reported.
This weekend the G20 meets in Mexico City to discuss the group’s role in a new round of IMF contributions that are very likely to end up being used to contain the Eurozone debt crisis. U.S., Chinese and Japanese official have questioned the role of the IMF and want more assurances that European individual governments and the economic zone as a whole are doing their part to prevent sovereign debt from reaching default status.
The IMF is looking for a 500 billion dollar commitment from the group in order to face the current European crisis. China, Japan and Mexico are willing to help if Europe leadership acts in line with their rhetoric. The U.S. is not seeking to add additional funds until they see “additional steps” are taken to prevent contagion.
ASIA WEEK IN FX
EUROPE WEEK IN FX
WEEK AHEAD
G20 Meetings
US Pending Home Sales
US Durable Goods Orders and CB Consumer Confidence
The JPY tumbled to its lowest level since July 2011 against the USD and its lowest level since August 2008 against the EUR, as Japanese importers were reported to be selling the currency to buy U.S. dollars.
Monetary easing from the Bank of Japan as well as the rising price of crude oil have pushed the JPY down, which could be good news for exporters that have been hit by the appreciation of the Yen. Analysts are expecting this trend to reverse as the JPY buybacks begin in the near future.
Japanese Finance Minister Jun Azumi met with Chinese Vice Premier Wang Qishan in Beijing on Sunday to discuss funding support to the eurozone through the International Monetary Fund. The duo will have more to say during the G20 meeting this weekend in Mexico City.
EUROPE WEEK IN FX
AMERICAS WEEK IN FX
WEEK AHEAD
G20 Meetings
US Pending Home Sales
US Durable Goods Orders and CB Consumer Confidence
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.
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 [...]
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. [...]
