MAJOR HEADLINES – PREVIOUS SESSION
* CA Dec. leading Indicators out at +1.5% m/m vs. +1.0% expected and +1.3% prior
* CA BOC leaves interest rates unchanged at 0.25%
* US Jan. NAHB Housing Index out at 15 vs. 17 expected and 16 prior
* NZ Q4 Consumer Prices out at -0.2% q/q, +2.0% y/y vs. flat/+2.1% expected and 1.3%/1.7% prior resp.
* US Weekly ABC Consumer Confidence out at -49 vs. -44 expected and -47 prior
* AU Jan. Westpac Consumer Confidence out at 5.6% vs. -3.8% prior
* JP Nov. Tertiary Industry Index out at -0.2% m/m, as expected, vs. revised +0.4% prior
* AU Jan. DEWR Skilled Vacancies out at +1.1% m/m vs. revised +1.6% prior
* JP Dec. Final Machine Tool Orders out at 63.4% y/y vs. +62.8% previously
THEMES TO WATCH – UPCOMING SESSION
(All times GMT)
* GE Producer Prices (0700)
* EU ECB’s Nowotny to speak (0740)
* EU ECB’s Stark to speak (0815)
* UK BOE Minutes (0930)
* UK Claimant Count Rate (0930)
* UK Avg Earnings (0930)
* GE Bundesbank’s Fabritius to speak (1000)
* CA CPI (1200)
* US MBA Mortgage Applications (1200)
* US Fed’s Dudley to speak (1320)
* CA Manufacturing Sales (1330)
* US PPI (1330)
* US Housing Starts (1330)
* US Building Permits (1330)
* UK BOE’s Posen to speak (1530)
Market Comments:
The risk-on/risk-off pendulum swung back to the former during yesterday’s session with Wall St putting on a strong showing after the long weekend. Firmer China rates at the weekly auction had seen Asia handing over the baton with risk appetite on the wane and this theme extended into the European session. Weak ZEW surveys out of Germany and the EU put the nail into the EUR while GBP benefitted from ongoing M&A influences and a very high print for CPI in December. In King’s speech later, the BOE governor sought to calm market nerves by saying the higher CPI would not change the BOE’s forecast that the CPI spike would prove temporary.
The BOC left rates unchanged at 0.25% as expected but again commented that repeated CAD strength would act as a “significant further drag on growth. The BOC also revised lower its 2009 and 2010 growth forecasts, but upped its prediction for 2011, and added that rates are expected to be held at 0.25% at least until the end of H1 2010. Net/net seen as a slight negative and helped the USDCAD rebound.
The positive mood from Wall St and currency markets soon evaporated as the Asian session got under way following reports in China media that banks had been told to limit lending for the rest of January. It took a while before official comments more-or-less confirmed this, when CBRC, the top banking regulator, said it would continue to control the quantity of credit supply and would impose new leverage and liquidity ratios on banks (specifically Citic Bank and Everbright bank mentioned being asked to increase reserve ratios by 0.5%). The news was enough to give risk a quick nudge lower with the usual suspects AUD and NZD major losers.
With the stage set it was only later that EURUSD fell through the 1.4250 support level with a plethora of stops triggered below and we were below the December low of 1.4217 in the blink of an eye, hitting a low of 1.4185 but lower later in the session. Note EURUSD is now convincingly through the 200-day MA, matching a similar move in EURGBP last Friday. Markets were also keeping an eye on the Senate election in Massachusetts and once Democrat Coakley conceded defeat, we saw the dollar extend its gains and US equity futures drifted off.
With all the recent news of firmer Chinese rates and lending curbs it is not surprising that the market is looking at tomorrow’s release of a fistful of Chinese data. Talk is that Q4 GDP numbers will be even higher than recent surveys (+10.5% y/y in the latest Bloomberg survey) while CPI and PPI will both beat forecasts (1.4% y/y and +0.8% y/y are the latest forecasts). It would not be surprising for Chinese authorities to try a take the wind out of the sails of very strong data with some careful manipulation/guidance beforehand.
IMF’s Strauss-Kahn is currently in Asia and was quoted on the wires as seeing currency as a key response to capital flows. He expects sluggish growth in advanced economies, though without any sign of a double-dip, but felt confident to suggest global growth would exceed the fund’s 3% forecast in its last review. He urged policymakers to keep measures in place to support demand and employment, fearing a premature exit from stimulus would risk a double-dip. The IMF releases its revised GDP forecast on Tuesday next week.
Concerns about China tightening will likely keep risk appetite under a cloud near-term and expect to broadly extend the trend seen in Asia. There is no data of note that is likely to provide any support for the EUR and a push towards 1.40 now looks on the cards. For the UK, BOE minutes will attract the most attention with December’s claimant count close behind, though GBP may pause for consolidation after the recent run-up on the back of Cadbury developments. The US session sees Canadian CPI, US PPI, housing starts and building permits on tap.
Written by Finexo.com