Market Overview

Market Overview Date 30/05/2012

The boost from China stimulus talk was rather brief as China ruled out the chance for another large-scale stimulus program. Also, sentiments are weighed down by worries on Spain's banking sector. European equity indices are mostly flat at the time of writing while Euro remains soft in range against dollar and yen. US futures, though, point to a mildly high open. Commodity currencies' recovery also lost momentum ahead of US session. Dollar index is staying firm above 82 level despite the retreat earlier today.

Spanish yield spread against German bund climbed to another record higher today. Prime minister Rajoy said yesterday that a European rescue for Spanish banks is not required. But he then contrasted and mentioned that the ESM would recapitalize struggling banks directly. Also, as reported before, Spain is considering to inject government debts into Bankia, which would in turn use that to seek ECB funding using the government debt as collateral. Markets are taking that as a sign of difficulty in access to market funding. Spanish 10 year yield continues to press 6.5% level today.

Italy sold EUR 8.5b of 183-days bills today. Yield jumped sharply to 2.104%, up from April's 1.772%. Bid-to-cover ratio dropped to 1.61 times, down from prior 1.71 times. Overall, the auction was seen as successful even though not spectacular. More important auctions of 5 and 10 year bonds will be carried out tomorrow.

It is likely that Ireland will pass the European fiscal pact on the referendum on May 31 as the latest polls showed that 60% of the voters supported the deal. Unfortunately, the market anticipates that the country might not be able to tap public funding later this year as the government planned. That means, the debt-ridden peripheral country in the Eurozone, despite its efforts in meeting the fiscal target and the return to growth in 2011, may need further bailout from the EU, the IMF or other international sources besides the 67.5B euro borrowed. More in Ireland's Ability to Access Bond Markets Not Certain although Fiscal Pact Likely Approved.

Earlier today, it's reported that China would implement measures amounted from RMB 1-2 trillion to bolster growth. The forecasts were indeed made by Credit Suisse on Monday. The bank also anticipated a -25 bps reduction in the policy lending rate, but no cut in the deposit rate. Moreover, bank lending is expected to rebound in June and July to about RMB 1 trillion, before trending down in 2H12. Credit Suisse's growth forecast for 2012 is 8.0%.

However, the official Xinhua News Agency later stated that the intention of Chinese government is "very clear" and it will "not roll out another massive stimulus plan to seek high economic growth". That is, “the current efforts for stabilizing growth will not repeat the old way of three years ago." Some Chinese analysts noted that China's stimulus program will be small, and modest at best.

Meanwhile, the Chinese government announced that direct trading of Renminbi against the Japanese yen will begin on Friday, marking the first time that China allows a major currency other than USD to trade directly against the RMB. The rate of RMB/JPY would be based on the average price of offers made by registered dealers before the opening of the market each business day. The move is a signal that the Chinese government has taken a step further to transform the RMB to a global currency.

Expectation for today's market (30/05/2012)

USDINR- Open Gap up

EURINR- Flat or slightly will open up

GBPINR- Slightly will open up

JPYINR- Slightly will open up

Morning Forex Fundamental (28/05/2012)

EUR

'The euro zone is being buffeted by major headwinds' - Howard Archer, chief European economist at IHS Global Insight

European manufacturing and services sectors shrink

Impact high

European manufacturing and services industries contracted in May. A composite index based on a survey of purchasing managers in manufacturing and services sectors declined to 45.9 from 46.7 in April, said the Markit Economics on Thursday.

'The euro zone is being buffeted by major headwinds, notably increased fiscal tightening in many countries and markedly rising unemployment,' said Howard Archer, chief European economist at IHS Global Insight in London.

'The heightened Greek crisis is magnifying the problems by weighing down on already weak and fragile business and consumer confidence, adding to uncertainty about the outlook.'

The Stoxx Europe 600 Index added 1.00 per cent to 241.91. Germany’s DAX Index rose 0.48 per cent and France’s CAC 40 Index gained 1.16 per cent. The U.K.’s FTSE 100 Index climbed 1.59 per cent to 5,350.05.

USD

'It looks more and more like businesses are hesitating to invest in the face of worsening uncertainties in the and global economy' - Pierre Ellis, a senior economist at Decision Economics

U.S. unemployment claims decline, durable goods orders edge higher

Impact High

The number of Americans claiming for unemployment benefits declined slightly by 2,000 to a seasonally adjusted 370,000 in the week ended May 19 from the week before, said the Department of Labor on Thursday.

'We might see a modest pickup in (jobs) growth in May versus April,' said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina.

'It looks more and more like businesses are hesitating to invest in the face of worsening uncertainties in the and global economy,' said Pierre Ellis, a senior economist at Decision Economics in New York.

Also Thursday, the Commerce Department said orders for long-lasting goods rose 0.2 per cent in April to a seasonally adjusted 215.5 billion dollars after declining 3.7 per cent in March

GBP

'[U.K.] employment remains fragile and wage growth weak' - Ross Walker, chief U.K. economist at Royal Bank of Scotland Group

U.K. economy shrinks more than forecast

Impact High

The U.K. economy shrank by more than expected in the first quarter of the year, revised figures have shown. Gross domestic product fell 0.3 per cent from a revised drop of 0.2 per cent, the Office for National Statistics said on Thursday.

'Despite all the problems in the euro area, France, Germany and the eurozone as a whole have so far avoided recession and only exports to other countries stopped us going into recession a year ago. The result is that Britain is now in a weaker position if things get worse in the eurozone in the coming months,' said shadow chancellor Ed Balls.

'The economy is not recovering properly and with the uncertainty over Europe hanging over the outlook as well, our suspicion is the Monetary Policy Committee [of the Bank of England] will sanction further quantitative easing (QE) at some point later on this year,' said Philip Shaw at Investec.

Forex Exchange Morning Report (10/05/2012)

Market wrap

Financial markets remained nervous the political outcome in Greece could have global implications but there was some temporary relief. Sentiment initially extended lower after the bailout troika (EU/ECB/IMF) cancelled its inspection visit amid the political chaos, but later rebounded after the EFSF rescue fund confirmed it will disburse the next instalment of EUR5.2b to Greece. The S&P500 was down -1.5% at one stage but has recovered to be -0.5%. The VIX index of risk aversion rose to a three month high. The Spanish stock market fell 2.8% and its 10yr bond yields rose 25bp to a one-month high as contagion took hold, assisted by reports its banking system may be partly nationalised soon. US 10yr treasury yields fell 5bp to 1.79% by midday London, but rebounded fully in NY. Australian 3yr bond yields fell a net 3bp.

The US dollar index (DXY) rose around 0.4% overnight to a two month high. EUR extended its break below a three-month neckline and made a four-month low at 1.2912 before consolidating in NY. Safe-haven yen again outperformed all, USD/JPY making a three-month low at 79.43 before recovering to 79.75. AUD underperformed, extending its seven-day decline to 1.0021 - a Dec-11 low - before recovering after the EFSF news to 1.0086. NZD pushed a little lower to 0.7814 but rebounded in NY to 0.7867. AUD/NZD consolidated around the Sydney closing level of 1.2820.

Economic wrap

US wholesale inventories up 0.3% in Mar, the gain constrained by lower grocery and gasoline stocks which would be largely price related. No major implications for Q1 GDP revisions.

Fedspeak: Minneapolis Fed chief Kocherlakota said 'six to nine months down the road, we should be thinking about initiating our exit strategy' - clearly he does not agree with the FOMC's conditional commitment to keep rates near zero till the end of 2014 (he does not vote on the FOMC this year)

German exports rose 0.9% in Mar, the third rise in a row (as with factory output reported yesterday) and the longest string of gains since Q1 last year. A non-negative Q1 GDP growth number for Germany is now more than likely - data due 15/5, just before the Euroland figures which we expect will be a small negative than Q4's -0.3%.

UK retail sales down 3.3% yr in Apr according to the BRC retail survey same store sales measure. Poor weather following a very mild March which boosted retail sales late in Q1 was cited as a factor.

Greece update - still no government formed; media reports that 'European countries' debating whether to delay the next tranche of bailout funds to Greece; German Chancellor Merkel 'aims to keep Greece in the euro'.

UK shop price infl ation slowed from 1.5% yr to 1.3% yr in April, according to the BRC, partly reversing the March acceleration and the second lowest reading in two years. This suggests that the annual CPI pace might resume its downtrend after ticking higher in March. Meanwhile the RICS house price survey found 19% of surveyors reporting lower prices in April, up from 11% in March and the most pessimistic reading since October last year.

Forex Exchange Morning Report (03/05/2012)

Market wrap

Risk sentiment reversed on weaker economic data.US private sector employment disappointed and flagged downside risks to the more important labour report on Friday. German unemployment unexpectedly rose, and Eurozone manufacturing activity contracted for the ninth consecutive month. Apart from data, there was chatter Moody's will downgrade Italian and Spanish banks later this week. The S&P500 is currently down 0.4%, while the CRB commodities index is down 1.3% (oil -0.9%, copper -1.5%). US 10yr treasury yields are 3bp lower at 1.92%, having touched 1.90% around midday London. Australian 3yr bond yield are 2bp lower.

The US dollar index (DXY) bounced 0.6% after the European data. EUR conversely fell from 1.3230 to 1.3122 by midday London but partly recovered to 1.3167 in NY. USD/JPY fell from the London open, 80.61 to 80.06. AUD fell from 1.0355 to 1.0285 but recovered in NY to 1.0331 in the day's outperformance. Underperformer of the day was the NZD, falling from 0.8154 to 0.8087 and then consolidating to 0.8106. AUD/NZD rose from 1.2685 to 1.2745, possibly reflecting a recognised overshoot in dovish RBA pricing combined with RBNZ easing risks

Economic wrap

US ADP private payrolls rise 119k in April. That is the slowest monthly gain since Sep last year, and compares to monthly average gains in excess of 200k in Q4 last year and Q1 this year. It is interesting that in Q1 2011, ADP recorded an average gain of 200k but in Q2 last year it slowed to 115k per month (and 99k average in Q3 2011). So more evidence here that early year optimism that the US economy might accelerate through 2012 could have been premature (as it was in 2010 and 2011). Note that the private component on the BLS non-farm payrolls report rose 210k in Q1 this year even with March's slower 121k outcome, so we remain comfortable with our below consensus 130k forecast for the gain in total payrolls in April, due out Friday.

US factory orders fell 1.5% in March, with the known durables decline revised slightly from -4.2% to -4.0% including a less negative core capital goods component. In quarterly terms, core capital orders slowed from 1.8% annualised in Q4 to 0.4% in Q1 (previously -0.5%). Non-durables orders are not reported separately but shipments of same rose 0.5% in March, as in Feb, while total shipments picked up from 0.1% to 0.7% in March. Factory stocks rose 0.3%. US NY ISM down from 67.41 to 61.2 in Apr. One of the lesser watched regional surveys, but also softer in April like were most of the other regionals, in contrast to the accelerating national factory ISM.

Euroland unemployment rate rises to 10.9% in Mar, matching the highest it reached in backcast figures for the mid 1990s (before the euro existed). Meanwhile in April, German unemployment rose 19k, its fastest gain since the middle of 2009 when the economy was in recession (and only the third rise since then too). Also the Euroland factory PMI was revised down from 46.0 to 45.9 in the fi nal April reading, its lowest since June 2009 and matching the level it was at in late Q3 2008, when the economy had already been in recession for two quarters.

UK PMI construction eases from 56.7 to 55.8 in Apr, still no evidence of the Q1 3% slump in construction output reported by the ONS in their first estimate of Q1 GDP growth.

UK credit/money statistics for March. Mortgage outstandings rose £1.0bn while consumer credit rose £0.4bn, maintaining the recent subdued pace of growth but certainly not accelerating. In March 49.9k new mortgages were issued, up from 49.0k in Feb, but that was the month a stamp duty holiday on lower priced homes ended. M4 money supply decelerated from -4.1% yr to -5.0% yr but the BoE's preferred measure excluding financial intermediaries within the finance sector was running a 6.4% annualised pace in Q1 up from -1.3% in Q4 last year.

Forex Exchange Morning Report (02/05/2012)

US equities were boosted by a strong survey (ISM)of manufacturing activity, easing market concerns that the softer tone of recent data heralds a mid-year slump in economic growth. In the absence of news from Europe (May Day holiday), the S&P500 benefitted to be currently up 1.0% and the Dow Jones made a fresh post-December 2007 high. The data release was noteworthy for the immediate 0.5% jump in the US dollar index (DXY). Markets probably interpreted the data as reducing the odds of QE3, boosting the USD against the lower beta EUR and JPY, although global risk sentiment also improved. The CRB commodities index is 0.6% higher. US 10yr treasury yields bounced from 1.90% to 1.96% on the ISM. Australian 3yr bond yields, which lost around 15bp after the RBA surprise (it cut 50bp vs 25bp expected), firmed 7bp overnight.

The US dollar index (DXY) halted a 9-day losing streak and formed a technically bullish key day reversal. EUR fell from 1.3284 to 1.3204 after the ISM but partly recovered amid the better risk sentiment to 1.3244. The yen also lost ground after the ISM, USD/JPY bouncing from 79.72 to 80.30. AUD underperformed due to the RBA surprise, falling from 1.0415 to 1.0330 on the announcement and extending that to 1.0305 in London. It partly recovered in NY to 1.0351, helped by the equities rally. NZD was only moderately ruffled by the RBA, rebounding from a London low of 0.8121 to 0.8163 in NY. The 2.4% fall in dairy prices had no impact. AUD/NZD fell from 1.2755 to 1.2665 after the RBA and preserved the loss

Economic wrap

US ISM manufacturing index rises from 53.4 to 54.8 in Apr. It was a real surprise that this respected indicator should accelerate in April to its highest since June last year, beating even the most optimistic of forecasts. Orders, production and jobs were all stronger; this contrasted with mostly softer detail in the preceding regional factory indices covering roughly the same survey period. It is notable that the ISM did not reflect the abrupt slowdown in industrial production figures for Feb-Mar and so it will be interesting to see whether the official factory data (published by the Fed who also conduct many of the regional factory surveys) bounce in Q2, or if the ISM corrects lower next month. That said, the ISM's April reading is only just back inside the lower end of the range of outcomes it recorded through 2010 and the first half of 2011, so in a broader sense it still indicates a slower pace of industrial growth relative to earlier in the recovery, even if it appears now to be accelerating as many/ most other indicators have started to lose altitude.

US construction spending rose just 0.1% in March after slumping about 2% in the first two months of this year. This part of the economy has clearly lost the momentum it built in late 2011, with non-residential spending down for the third month running and residential rising 0.7% after falling 2.2% in Feb. Public spending in the construction sector has now fallen every month since December and is down 3.2% yr, partially off setting private spending growth of 11.52% yr for an overall annual construction spending gain of 6.0% yr.

UK PMI factory down from 51.9 to 50.5 in Apr, its lowest reading for the year so far but still in positive territory (ie >50) in contrast to the 5 out of 6 monthly readings in H2 2011 that were sub 50. Although softer the result doesn't detract much from the suspicion that the surprise fall in Q1 GDP might be revised to the upside as more data become available.

Forex Exchange Morning Report (27/04/2012)

Market wrap

US equities rallied for the third consecutive day, fuelled mainly by better-thanexpected company earnings in Q1. US data was mixed, jobless claims and a regional manufacturing survey disappointing but pending home sales adding to the improving housing market picture. The S&P500 is currently up 0.7%, although European equities closed unchanged. An EC economic confidence survey was disappointing and adds to the body of indicators pointing to negative growth in 2012. The CRB commodities index is up 0.4%, copper +2.1%, gold +0.8% and oil +0.4%. US 10yr treasury yields were more sensitive to the weaker US data releases, currently down 3bp at 1.95%. Eurozone peripheral bond yields are mostly lower, the Greek 10yr down 46bp, the Portuguese down 42bp.

The US dollar index (DXY) continued its drift lower. EUR rose from 1.3220 to 1.3263 during the Asian session but fell in London to 1.3198 before settling in NY at 1.3240. The yen strangely outperformed during the risk-on session, perhaps due to lower market expectations of today's BOJ meeting. AUD ground higher from 1.0360 to 1.0400. NZD ran out of steam early London and fell from 0.8190 to 0.8125. AUD/NZD rose from 1.2680 to 1.2770 in a lagged response to the RBNZ's dovish surprise yesterday

Economic wrap

US initial jobless claims down 1k to 388k in w/e 21/4. Claims are indicative a job market softening through April which is consistent with housing, industrial production, orders, survey and auto sales figures which all suggest the economy lost some momentum late in Q1; that softening looks to be extending into the early part of Q2

US Chicago Fed national activity index down from +0.07 to -0.29 in Mar. This index is compiled from 80+ data releases and suggests that the growth pace is slipping from 3% annualised in Q4 back to where it was in Q2/Q3 last year ie 2% annualised or thereabouts. Also, the Kansas City Fed factory index slowed from 9 to 3 in Apr, its lowest reading for the year so far. The detail showed production and shipments growth slowed sharply, jobs growth was steady but orders fell.

US pending home sales up 4.1% in Mar. It is hard to find anything negative to say about the pending home sales data which suggest sales momentum has been maintained, in contrast to most other indicators of the sector. The data never consistently point one way; as with retail sales there have been some bright spots in the statistics for late in Q1. But the overwhelming message remains one of slower economic activity since the turn of the year.

Euroland surveys turning down. The business climate index fell from -0.28 to -0.52 in April, and economic confidence fell from 94.5 to 92.8 in April. Both these surveys are at their lowest since late 2009/early 2010, further evidence that the recovery of the past few years is running out of steam.

German CPI edges down from 2.1% to 2.0% yr in April preliminary reading, the lowest since the start of last year.

UK retail survey slips further. The CBI found reported sales down from 0 to -6 in Apr, its lowest reading since Jan. In March, the Nationwide consumer confidence index rose from 44 to 53, its highest since the middle of last year (in contrast the alternative GfK index weakened in Mar); the BBA reported 31.9k new mortgages last month, down from 32.8k in Feb.

Forex Exchange Morning Report (26/04/2012)

USD Softer after Fed Meeting

FX markets were relatively choppy and the dollar is currently softer against the majors following the FOMC announcement, updated Fed projections, and press conference. U.S. Treasury yields are mixed and 10-year yields briefly spiked above the 2.01% 100-day SMA and are currently back below the pivotal level.

The Fed kept rates on hold at 0-25bps as expected and maintained its stance to keep rates “exceptionally low” through late 2014. There were subtle changes to the FOMC statement, noting recent improvement in labor market conditions and the housing sector, but maintaining the view that the unemployment rate is elevated and housing market depressed. The bank also noted that inflation has picked up due to higher oil prices and said that they “economic growth to remain moderate over coming quarters and then to pick up gradually”. Overall, the statement was slightly upbeat and made no mention of QE which saw yields and the buck move higher.

The release of Fed projections showed upwards revision to real GDP growth with forecasts of 2.4%-2.9% for 2012 up from the prior 2.2%-2.7% estimate and the unemployment rate forecast was lowered to 7.8%-8% this year from the previous forecast of 8.2%-8.5%. At the press conference, Bernanke made comments indicating that the Fed won’t hesitate to take action if necessary and said that “tools remain on the table”. However for now, he noted, that good reasons exist to continue to keep policy easy and rates low. Treasury yields and the dollar reversed their initial gains and the dollar index is currently trading near lows of the session around the 79.00 figure.

Also of note was the disappointing release of durable goods orders this morning which dropped by -4.2% (cons. -1.7%) on the headline reading in March – the biggest drop in 3 years. Durables ex transportations also came in worse than expected with an unexpected decline of -1.1% (cons. +0.5%).

The euro continues to trade relatively firm against most of its major counterparts (except for the commodity currencies) after ECB President Draghi called for a “growth compact”. The remarks were viewed as constructive and German Chancellor Merkel backed the ECB President’s statements but rejected the notion of stimulus spending to boost economic growth. In other European news, margin requirements were raised to trade some Spanish and French bonds, however sovereign yields have not yet reflected the news. EUR/USD is trading above the 1.32 figure and sees year-long trendline resistance not far above ahead of the 1.33 level. (click here to see chart).

The Reserve Bank of New Zealand will announce interest rates at 1700ET and is expected to keep rates on hold at 2.50%. Elsewhere in the Asia/Pacific session is the release of Japan’s weekly securities investments, the Feb. all industry activity index, and the Australian Feb. Conference Board leading index.

Forex Exchange Morning Report (25/04/2012)

The dollar traded mixed amid mixed US economic data and as the Fed began its 2-day policy meeting. The greenback is stronger against the AUD, NZD, and JPY while softer against the rest of the G10. EU sovereign yields in the secondary markets fell even as borrowing costs rose at government auctions in Netherlands, Spain, and Italy. The ease in yield spreads supported the common currency today which was higher against all of the majors except for the CAD. EUR/USD briefly rose above the 1.32 figure and is currently back below the convergence of the daily Kijun line and cloud top around the 1.3190 level – a pivotal area on a daily closing basis.

U.S. economic data showed a drop in April consumer confidence to 69.2 from the prior 69.5 (cons. 69.7) while the Richmond Fed manufacturing index in April unexpectedly jumped to 14 from the prior 7 (cons. 6). Housing data was mixed with new home sales falling by -7.1% m/m, however the decline was to a higher than expected 328k sales in March from an upwardly revised 353k in the prior month. The S&P/Case Shiller home price index fell by more than forecast with a yearly drop in Feb. of -3.49% (cons. -3.40%) to 134.20 while the Feb. FHFA House price index showed a m/m gain of +0.3% (cons. +0.1%). The reaction to the mixed data was relatively muted but saw sentiment slightly higher and the dollar index marginally lower.

In Canada, retail sales unexpectedly fell in Feb. The headline reading showed a m/m decline of -0.2% (cons. +0.1%, prior +0.2%) while sales less autos rose by +0.5% from the prior -0.8% (cons. +0.6%). The market did not place too much emphasis on this figure as it shows data for the month of Feb. and we would expect to see it tick higher the following month after the very strong pick up in employment seen in March. The Loonie was firmer as stocks and oil gained and after the Bank of Canada Governor Carney reiterated the hawkish tone that higher rates may become appropriate. USD/CAD declined towards the low end of its range and sees the 2012 lows around 0.9855.

U.S. equities finished higher on the day after better earnings releases. The Dow Jones Industrial Average closed to the upside by about +0.58% while the S&P 500 rose by around +0.37% to end the session. Precious metals were mixed with gold slightly higher by about +0.17% while silver is down roughly -0.06% at time of writing. U.S. 10-year Treasury yields are currently higher by about 3.3bps to around 1.966% as yields edge up across the curve on improving sentiment.

On the data front for the upcoming Asia/Pacific session are Japan’s March machine tool orders and April small business consumer confidence.

Consumer Confidence Increases For Three Consecutive Months In South Korea

South Korean economy has announced its consumer confidence index that measures the relative financial health and spending power, which soared in April as positive signs for the nation economic recovery.

Today's report is giving sign that the recovery in the nation is getting up. Moreover, S. Korean consumer confidence index rose to a near one-year high in April while inflation expectations fell to a 13-month low, indicating inflationary pressures may be gradually easing.

South Korean consumer confidence has increased to 104 during April, while the preceding reading came at 101 in March.

The stable consumer prices has supported to improve the economic recovery cycle, also supported to increase the production and consumption during the first quarter of the year, while the global economy suffers from European financial crisis.

On the other hand, South Korea's government kept the interest rate as expected unchanged at 3.25% for the second straight meeting to support the nation's growth and also for the higher inflation rate.

Reserve bank may not need to lower the interest rate during the current environment in order to control the inflation rates, while another index showed an improvement like PMI index in March that recorded 85 from previous of 84.

During April, consumer sentiment on current economic conditions jumped 7 points to 77 over the cited period, with that on future economic conditions surging 8 points to 90. Consumer sentiment on prospective income added 2 points to 99, and that on prospective spending advanced 2 points to 110.

Forex Exchange Morning Report (24/04/2012)

Market wrap

Eurozone politics put markets on the defensive. The Dutch PM and his cabinet offered to resign in the wake of the weekend's failure to agree a Budget among the coalition, further threatening its AAA status. The French election (round one) victory for the opposition socialists continued to ripple through markets, and disappointing Eurozone PMI's signalled recessionary conditions for this year. The S&P500 is currently down 0.9% and the VIX barometer of risk aversion gapped 2ppts higher. Commodities also suffered, the weak unofficial China PMI reading yesterday helping copper fall 1.7%. US 10yr treasury yields are 3bp lower at 1.93%, while Australian 3yr bond yields fell 6bp overnight. Eurozone yields were largely unruffled although the Italian 10yr nudged 12bp to a two-month high.

The US dollar index (DXY) is 0.3% higher. EUR extended its Asian session decline to 1.3105 by early NY and then partly recovered to 1.3150. Safe-haven yen outperformed, USD/JPY falling from 81.40 to 80.97. AUD and NZD were the day's underperformer, AUD extending losses below the 1.0305 support level to 1.0272, recovering in NY to 1.0314. NZD fell from 0.8160 to 0.8088 before recovering to 0.8131. AUD/NZD was directionless between 1.2660 and 1.2705.

Economic wrap

Canadian wholesale sales rise 1.6% in Feb. This more than reversed the Jan decline, with autos and household goods sales especially strong.

Euroland composite PMI down from 49.1 to 47.4 in the advance Apr reading, its third straight decline and the lowest since Nov (ie not as soft as the recent low of 46.5 which followed the Europe-driven equities collapse in the prior quarter). The services PMI fell from 49.2 to 47.9 while the factory PMI dipped 1.7 pts to 46.0, lower than at any point last year (lowest since June 2009). Both these outcomes were below the bottom end of the range of market expectations. Our view is that likely upcoming news stories in the next few months will be include another Greek bailout looking likely - bringing default speculation back; another Portuguese bailout; nil GDP growth or weaker in Q1. So we see more downside ahead for these PMIs and expect the ECB to downgrade their forecasts or 2012 GDP growth further in June - possibly hinting at or delivering further policy easing at the time.

Spain in technical recession. The Bank of Spain estimated that Q1 GDP contracted 0.4%, on top of the 0.3% fall in Q4. That is not the official GDP print (due April 30 from the statistics office) but if/when confirmed it would mean that Spain is now in technical recession and that the level of output in Q1 was the lowest since late 2010. Recall that Italy is also in recession, with output there falling since Q2 last year. Germany contracted 0.2% in Q4; France is the only one of the big four Eurozone economies not to contract in Q4 last year; overall Euroland GDP was down 0.3% in Q4.

Dutch developments. We may have to add Holland to France and Greece (both early May) on the list of upcoming elections to watch. The coalition split over austerity measures prompted the government cabinet to tender its resignation to the queen though it remains in place as an interim administrator. The possibility that a budget won't be passed for this year has called into question the sovereign's AAA credit rating and added to uncertainty in an economy that has been in recession since the middle of 2011.

EUR/USD Breaks Higher, China PMI (23/04/2012)

U.S. Dollar Trading (USD) the market sold the USD into the weekend as the EUR/USD recovery extended higher. With little data out the market reacted to news flow from the Eurozone and in particular the increases to IMF funding pledged from G20 which amounted to 400bn. Looking ahead, No US Data to start the week.

The Euro (EUR) the EUR/USD broke above 1.3150 and we moved to 1.3220 as the IMF news combined with the better than expected German IFO to push higher. April German IFO increased to 109.9 vs. 109.5 forecast. EUR/JPY kicked to Y108 and is enjoying the upside in recent days. The Sterling (GBP) the GBP/USD rally extended on Friday kicking above 1.6100 and opens up 1.6500 this week with many seeing the downside over and all the GBP crosses moving technically higher. GBP/AUD moved above 1.5500. The EUR/GBP remained offered and closed under 0.8200 and is targeting the 0.8000 level going forward. Looking ahead, April German Manufacturing PMI forecast at 49 vs. 48.4 previously. Also ahead, Eurozone Manufacturing PMI forecast at 48 vs. 47.7 previously.

The Japanese Yen (JPY) USD/JPY held in a tight range above Y81.50 but is of risk of once again falling back as USD weakness usually moves across onto the USD/JPY if sustained. Crosses are supported for the time being but need sustained risk appetite to move higher. Australian Dollar (AUD) the AUD/USD was supported by the move higher in the EUR/USD but the market was hesitant at 1.0380 and we saw the Aussie fall behind. The GBP/AUD and EUR/AUD took advantage of the lagging Major to push higher with week highs on both and more gains expected. Looking ahead, April HSBC China PMI forecast at 49 vs. 48.4 previously.

Oil & Gold (XAU) Gold spent the whole day in a $5 dollar range above $1640 and is waiting for further inspiration. OIL/USD rallied with stocks and the Euro up above $104 and near $105 before easing into the weekend. The $105 level is a big resistance and could prove the pivot in coming days.

Forex Exchange Morning Report (20/04/2012)

MARKET WRAP

Markets remained on a nervous footing. Although the Spanish 3yr and 10yr bond auctions went well (raising EUR2.54bn vs 2.50bn target) and more countries pledged contributions to boost the IMF's rescue firepower, markets focused on a Moody's warning that Spain and Italy are vulnerable to rising borrowing costs. There was also a US bank research note opining Moody's will probably place France's Aaa rating on review for a downgrade, and there was market chatter regarding the Netherlands' rating. US data (home sales, jobless claims, and Philadelphia manufacturing) was underwhelming. All this has left the S&P500 down 0.9%. Commodities are little changed, while the US 10yr treasury yield fell from 2.00% to 1.95% in London. There was decent demand at the US 5yr inflation-linked auction, awarded at a -1.08% (real yield) record low.

The US dollar index (DXY) is little changed. EUR carved a wide sideways range for little net change, between 1.3069 and 1.3166. USD/JPY ground a little higher, from 81.40 to 81.74. The commodity currencies responded most to the risk averse atmosphere. AUD fell from 1.0391 to 1.0314. NZD fell from 0.8198 to 0.8122. AUD/NZD extended its mutli-day corrective rebound slightly, from 1.2690 to 1.2705.

ECONOMIC WRAP

US Philadelphia Fed index down 4 pts to 8.5 in April, its lowest reading since January. That is the fifth regional Fed factory survey in a row to fall away, following the Richmond, Dallas and Kansas City March surveys, and the April NY Fed reading, adding to the range of data pointing to some loss of economic momentum since the start of the year. The April Philly detail included modest declines in orders and shipments, both now sitting a little under 3; however jobs jumped for the second month running to their highest since May last year.

US existing home sales down 2.6% in March, further unwinding the 5.7% spike in sales back in January (highest since May 2010). Indeed sales have now fallen in three of the four most recent months. None of the four major regions of the US recorded a sales rise in March. This series measures previously agreed sale closings; next week's pending sales report for March will show how many sales were agreed last month: we expect a fall there too. Today's report also showed median house prices rising 2.5% yr in March, the first positive reading in over a year, but the National Association of Realtors noted that there were more higher-priced properties transacted in the month.

US initial jobless claims down 2k to 386k in week ended 14/4, but the previous week was revised up 8k to 388k, the highest since the first week of January. The BLS noted that it was trying to determine the cause of recent significant revisions to the series, but as the data stand they suggest that layoff s have increased sharply since March. Other US data included a 0.3% rise in the March leading index, down from 0.7% in Feb.

European consumer confidence slipped from -19.1 to -19.8 in the advance April report, its first fall for 2012. Between June and Dec 2011 the confidence index fell from -10.0 to -21.3.

Spain meets issuance target at bond auction, selling just over €2.5bn worth of 2 and 10 year bonds. While the investor appetite was there, the 5.74% yield on the 10yr was up from 5.40% at the previous auction in January - yet another reflection of the increased concern about the sustainability of sovereign debt in Europe, as the economy recedes, the banking system's fragility is exposed, and the policy response is feared to be sub-optimal.

Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Apr 18 12 02:47 GMT

Market wrap

Risk appetite rose amid an upgrade to IMF global growth forecasts (3.3% to 3.5% in 2012), a surprising rise in German investor confidence, and a decent Spanish bill auction (EUR 3.2bn raised vs 3.0bn targeted). European equities (Eurostoxx 50) closed 2.9% higher, and the S&P500 is currently up 1.6%. Commodities are moderately firmer (CRB index +0.4%, oil +1.3%, copper +0.5%, silver +0.8%). US 10yr treasury yields are 3bp higher at 2.01%, and Australian 3yr bond yields are 4bp higher. Eurozone peripherals improved, the Spanish and Portuguese 10yr each down 18bp.

The US dollar index (DXY) probed slightly lower but is little changed on the day. EUR probed slightly higher to 1.3173 and then ranged sideways. The day's outperformer was the CAD, the Canadian central bank signalling it is ready to start tightening if conditions permit, noting reduced slack and higher inflation. Safe-haven yen underperformed, USD/JPY rising from 80.37 to 80.83. AUD rose sharply from 1.0306 to 1.0418. NZD rose from 0.8151 to 0.8235. Dairy prices fell 10% at the auction but there was little NZD response. AUD/NZD firmed from 1.2640 to 1.2680 but retreated to 1.2650 in NY

Economic wrap

US housing starts down 5.8% in March. Single family house starts were down 0.2% on top of Mar's 9.0% fall; single family permits fell 3.5% in Mar, their first fall in 6 months (always volatile multiple starts fell 16.9% while multiple permits rose 20.8%). Both starts and permits for single family housing were running a 462k annualised pace in Mar, providing no clue to the likely nearterm direction of starts. In Q1 total starts rose 2.5% over Q4, whereas Q4 was up 8.9% on Q3, so there is some lost momentum showing through in the housing story. What appeared to be a nascent housing recovery from late 2011 might have been largely a mild weather story which is now starting to unwind.

US industrial production flat in March, as it was in Feb. The steady (but weak) headline masked a pull-back in factory output, down 0.2% in Mar after solid gains in Dec-Feb. The swing factor was utility output, posting its first significant rise in March since July last year; recent falls through the winter reflecting milder than usual weather which meant less need for heating than usual. The factory detail showed the fourth straight gain in auto production but a 0.3% fall in ex auto manufacturing.

Fedspeak. St Louis Fed president Bullard expects the economy to run a 3% growth pace this year, which he characterised as 'on track... [so that] policy can stay on hold for now' Bank of Canada on hold at 1.0% but the statement wording now implies a mild tightening bias, noting that 'some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 per cent inflation target over the medium term. The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.' Previously, stimulus was described as considerable but there was no mention of withdrawing it. The BoC growth forecast for Canada in 2012 was lifted from 2.0% to 2.4%. On the data front, manufacturing sales fell 0.3% in Feb, on top of a 1.3% fall in Jan, the first back to back declines since Q2 last year

Euroland inflation revised up from the 2.6% yr flash estimate to 2.7% in Mar, while the core rate rose from 1.5% back to the recent peak of 1.6%

German ZEW analysts' expectations survey up from 22.3 to 23.4 in April. That is its fifth straight rise. But ZEW was posting gains of 20 or 30 points per month between Dec and March rising from -54 to +22 as the apparent success of the ECB's LTROs sunk in. In that context the 1 pt rise is recognition that the outlook is not going to keep improving, but we are surprised there is not yet renewed concern showing up, as in the Sentix investor earlier this month. Note that the ZEW current index rose from 37.6 to 40.7 in April but that is still around the levels we saw at the start of the 2008 recession.

UK CPI edged up from 3.4% to 3.5% yr in March. The alternative RPI however slipped from 3.7% to 3.6%, and RPI ex food fell from 3.7% to 3.4%. This CPI blip higher (the first rise in 6 months after it fell from 5.2% yr in Sep ) is mostly a temporary food story and will not materially influence the Bank of England's May forecasting round which we expect to provide the justification for a further £50bn of asset purchases on top of the £325bn already announced. Meanwhile, the DLCG house price index edged up from flat to 0.3% yr, its first positive annual growth rate in just over a year (and in contrast to yesterday's Rightmove asking price survey running 3.4% yr in April after declining in annual terms very slightly in just one month, August, last year).

IMF revises up 2012 global growth forecast from 3.3% in Jan to 3.5%. This reflects an upgrade to the US from 1.8% to 2.1%; a less deep recession in Europe (from –0.5% to –0.3%), as well as upgrades to Japan, China and elsewhere. There were few country forecast downgrades, just India (6.9% from 7.0%) and Spain (–1.8% from –1.6%). The report noted that 'although action by policymakers in Europe and elsewhere has helped to reduce vulnerabilities, risks of a renewed upsurge of the crisis in Europe continue to loom large, along with geopolitical uncertainties aff ecting the oil market.'

Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Apr 16 12 02:10 GMT

Market wrap

Markets closed the week in a bearish mood. China's GDP disappointment earlier on Friday was the initial catalyst for the slide, later fuelled by the release of ECB data showing Spanish and Italian banks took over half the LTRO liquidity injection and probably used much of it to buy their country's government bonds. The S&P500 closed down 1.3% and the VIX index of risk aversion rose 2.4ppts. Spanish 10yr government bond yields rose 18bp to 6.0% and Italy's rose 14bp. The CRB commodities index closed down 0.9% (oil -0.8%, copper -2.5%, gold -1.0%). US 10yr treasury yields fell 7bp to 1.98%. Fed Chairman Bernanke spoke on the crisis but avoided monetary policy discussion. Australian 3yr bond future yields fell 6bp. On Sunday, China announced it will widen the trading band for its managed currency (CNY) from 0.5% to 1.0% - a small incremental step towards liberalisation but possibly also a sign of confidence it will avoid a hard landing; Asian equities and currencies, at least, should benefit today.

The US dollar index (DXY) rose around 0.8% on the flight to safety. EUR fell from 1.3180 to 1.3070. Safe-haven yen outperformed the majors, USD/JPY ranging between 80.83 and 81.13. AUD bounced to 1.0427 during the London morning but then fell to 1.0356 before stabilising. It opens higher at 1.0380 in NZ this morning. NZD similarly fell from 0.8315 to 0.8227, opening slightly firmer this morning at 0.8245. AUD/NZD firmed from 1.2520 to 1.2600.

Economic wrap

US CPI up 0.3% in Mar, with the core rate up 0.2%. Clothing, transport and leisure were all above trend, and used vehicle prices jumped 1.3% after falling for several months. The high weighted rent component on 0.2% from 0.1% in Feb sealed the 0.2% core rate, in line with the annual 2.3% pace for core CPI. Outside of the core, energy was up 0.9% (1.7% for gasoline, up 9.0% yr) while food rose 0.2%.

US consumer sentiment drifted down from 76.2 to 75.7 in the preliminary April reading from the Uni of Michigan, reversing half of March's 0.9 pt rise. The decline was driven by the current conditions component, down 5.6 pts to its lowest for the year so far, whereas the outlook index rose 2.7 pts to its highest since Sep 2009, when the economy was just emerging from recession.

Bank of Spain data show that Spanish banks borrowed 29% of the ECB's LTROs, while Spanish Treasury data show that Spanish bank holdings of Spanish government debt grew by €42bn after the first LTRO in Dec (figures for Jan so don't include any impact from the second LTRO in late Feb). At the time that helped push yields down making the government's debt position more manageable, and making profits (or lower losses) for the banks on their positions. But the extent to which the fragile banks and the indebted government are interlinked in a recessionary economy is now spooking markets and bond yields have spiked back towards 6% (5.96% today from 5.32% in early April), taking others for the ride including Italy (up 12 bp to 5.51% today). So what seemed like a decisive response to the sovereign debt problem earlier this year, is now seen as adding to the risks ahead. This is the kind of development that should ultimately see the ECB fire up a more aggressive bond-buying program, by-passing the banks, and doing it directly in the market, and not sterilised like the currently suspended bond buying program has been. Italian industrial production fell a further 0.7% in Feb, for a –3.5% annual pace of decline, around where it was running in the recession of 2008 before the global trade collapse late that year hit production even harder.

UK PPI output decelerated from 4.1% yr to 3.6%yr in March, despite a 0.6% rise in the month. The core output PPI slowed from 3.0% yr to 2.5%. These numbers confirm that despite commodity price gains (input prices rose 2.5% in Feb and a further 1.9% in March) the further along the production line you go, the less evidence of inflation passthrough you see).

Market Overview


Traders had been indecisive in deciding whether to sell dollar or euro last week. Disappointing job market data from US reignited the talk of QE3 from Fed and triggered some pull back in the greenback. But it's the situation in Spain that should have finally pushed traders to make up their mind to dump euro and risk assets. Late Friday's selloff in European majors suggests that the pull back in greenback is over. Yen is also having admirable resilience last month's rebound. Meanwhile, we saw DOW faced strong resistance from 13000 despite a solid rebound attempt. It looks like markets are back in risk averse mode where odds now favor more upside in dollar and yen in near term.
 Written by ActionForex.com | Apr 14 12 13:12 GMT


China Recorded Lower Growth In First Quarter

Written by ecPulse.com | Apr 13 12 03:54 GMT

Chinese economy's growth slowed more than expected during the first quarter of the year, where exports and domestic demand saw a breakdown which negatively affected on the expansion of the world's second largest economy.

Chinese economy recorded a fell in its GDP reading for the first quarter, where the reading came fell to 1.8% from previous reading of 2.0% while expectations was leading to a fell by 1.9%.

At the same time the yearly basis reading for the first quarter also showed an unexpected decline where the actual came with 8.1% from prior of 8.9%, while expectations was leading to 8.4%

Furthermore, monetary policy makers will focus on stabilizing the nation's growth and avoiding an excessive downturn during the upcoming months, as they need to rely on further policy that coul;d boost the nation's expansion.

On the other side, the government shall take steps to support the nation's demand through encouraging investment, where the central bank may lower its required reserves ration during the current month to boost investments.

Meanwhile, Retail sales in China showed an unexpected incline in March on yearly basis to reach 15.2% while expectations were leading to 15.0%. Also Chinese economy announced its industrial production for March to show an increase to 11.6% on yearly basis from a previous reading of 11.4%, while expectations were leading to a lower of 11.3%.

Finally, Chinese economy still achieving a growth but it is not satisfy for the world's second largest economy, which will push on the government to boost investments and exports in order to rebound its domestic demand.

Forex Exchange Morning Report

Written by Westpac Institutional Bank | Apr 13 12 03:10 GMT

Market wrap

Risk markets rose last night on dovish Fedspeak and China rumours. Fed dove Dudley followed Yellen's dovish speech yesterday with an endorsement of the 2014 bias and expressed some doubts about the US economy's recovery. China loan growth beat expectations, helping allay fears authorities are not responding to a cooling economy. Rumours the China GDP print today will top 9.0% also helped sentiment. The S&P500 is currently up 1.3% and the CRB commodities index is 1.2% higher (oil +0.9%, copper +2.1%, gold +1.1%). US 10yr treasury yields rose from 2.02% to 2.06% during the London session. The 30yr auction went well, with a 2.8 bid-cover ratio (vs 2.7 year average).

The US dollar index (DXY) is around 0.6% lower on the improved risk atmosphere. EUR rose from 1.3102 to 1.3213 during London. Safe-haven yen again underperformed, USD/JPY slipping from 81.13 to 80.75. AUD outperformed following yesterday's strong labour report and the China data and rumours, extending gains from 1.0365 to 1.0450. NZD rose from 0.8195 to 0.8278. AUD/NZD consolidated its recent bounce, slipping from 1.2665 to 1.2620.

Economic wrap

US initial jobless claims rise 13k to 380k in week ended 7/4. Recent back revisions mean that the previously reported dip to around 350k per week during March never happened; the low point is now 361k in mid February, since when a modest claims uptrend is now discernible. This is the third labour market indicator in the past week that has been weaker than expected (on top of March payrolls and NFIB small business intention to hire), adding weight to the view that the US job market might be losing some momentum.

US trade deficit narrows from $52.5bn to $46.0bn in Feb. This reflected a 0.1% rise in exports and a broad-based 2.7% drop in imports, the first fall since October and possibly evidence that demand was weakening in the middle of the fi rst quarter.

US producer prices flat in March but up 0.3% excluding food and energy. Food prices rose 0.2% while energy was down 1.0%. The core rate rise was mainly a function of higher vehicle prices, up 0.7% (light trucks) and 0.8% (autos). The intermediate PPI rose 0.7% (0.6% core) while the crude PPI fell 2.5% (up 1.1% core).

Fedspeak: on top of last night's comments from Fed vice-chair Janet Yellen who considers “a highly accommodative stance to be appropriate in the present circumstances', NY Fed president Bill Dudley today said he had not seen “any set of information that should suggest to me we should change that view'.

Canadian trade surplus C$0.3bn in Feb, the fifth surplus in six months after deficits which stretch back to late 2008. Exports fell 3.9% (led by autos) while imports posted a modest 0.2% rise, with energy up 18% but most other import categories weaker. Other data included a 0.3% rise in new house prices in Feb for a slight easing in their annual pace of gain from 2.4% yr to 2.3% yr.

Euroland industrial production rose 0.5% in Feb for a –1.8% yr annual pace of decline, a little weaker than it was running in the fi rst two quarters of the recession in 2008. The monthly gain was mainly due to unseasonally cold weather conditions requiring boosted energy output. Feb's rise was the fi rst since August.

UK trade deficit widens from £7.9bn to £8.8bn in Feb, its widest in three months, reflecting a 3.4% fall in exports (about 60% of which go to the probably recessed continent) but essentially unchanged imports.