Forex Exchange Morning Report
Market wrap
The overnight session was a muted affair, although commodities and the NZD fared poorly. Equity markets halted afive-day rally after IBM and Intel results disappointed. There was also data from Spain showing banks' bad loans had reached a record high, and ECB member (and German central bank head) Weidmann implied it won't be Spain's white knight. The Eurostoxx 50 closed down 1.7% and the S&P500 is currently down 0.2%. The CRB commodities index is down 1.0%, oil -1.4%, copper -0.4%, gold -0.6%. US 10yr treasury yields are 2bp lower at 1.98%, as are Australian 3yr yields.
The US dollar index (DXY) rose during the London morning and then fell for little net change. EUR fell from 1.3130 to 1.3067 but rebounded to 1.3137 early NY. GBP outperformed after the BOE minutes revealed votes for further QE slipped from 2 at the previous meeting to 1. USD/JPY consolidated recent gains between 81.20 and 81.60. AUD fell from 1.0400 to 1.0341 by noon London and then ranged sideways. The day's underperformer was NZD, possibly due to bearish positioning ahead of today's CPI report, falling from 0.8218 to 0.8149. AUD/NZD rose as a result, from 1.2660 to 1.2695.
Economic wrap
The Bank of Canada published its monetary policy report detailing the upgrading forecasts noted in yesterday's statement, refl ecting diminished European and US risks, compared to those assessed in the January report. Editorial note: US jobs data were improving by mid Jan, and the ECB's Dec LTRO was being recognised as a circuit breaker for fragile, near frozen European banking system. In the lead up to this BoC MPR, US economic data have softened across a range of indicators and the sovereign data crisis seems to be building in intensity once more. On our view, the BoC may well downgrade their forecasts and drop their slight tightening bias by the time of the next report on July 18.
Euroland current account deficit €1.3bn in Feb. That's the second deficit since several years of near continuous deficit ended in July last year. The January surplus was €3.7bn. Other data included a 7.1% plunge in construction output in Feb, itsfifth fall in six months, to be down –12.9% yr, about as weak as at the depth of the 2008-9 recession. The monthly data are noisy but that is a seriously weak looking report, with Germany down 17.1%, France off 0.4% and Italy down 9.9%.
Spanish bank non-performing loans now account for 8.2% of lending, up from <1% five years ago, according to Bank of Spain data.
UK unemployment rises 3.6k in Mar and Feb revised down from 7.2k to 4.5k. The most interesting news in the UK labour report was the quarterly jobs story which showed 50k jobs growth in Mar-May 2011, fell 178k in Jun-Aug and since then +18k and now +53k in the latest qtr Dec-Feb. Consequently the jobless rate eased from 8.4% back to 8.3%. So jobs collapsed during the summer when markets were tanking on European and slower US growth concerns, even though the economy was still growing at a 0.6% pace in Q3, but jobs were already recovering when GDP contracted in Q4 last year. Not the typical relationship you would expect between growth and jobs, but we are comfortable leaving our GDP forecast for Q1 at 0.0% in the qtr.
Bank of England minutes to the April MPC meeting showed 8:1 support for maintaining the asset purchase program at £325bn compared to 7:2 at the March meeting. It is significant that long term dove Adam Posen no longer supports immediate further QE and the other one remaining voter in favour David Miles was “finely balanced”. It is true that the infl ation outlook has been pressured by commodity price gains and the majority were not convinced the May projections would provide the justification for a further QE extension. But since the meeting European concerns have intensifi ed, China has slowed and the US economy softened, so we aren't dropping our May +£50bn call just yet.
Merchandise Trade Balance In Japan Recorded Lower Than Expected Deficit
Merchandise trade balance total in Japan released its reading for March to come less than expected deficit, where the reading came with higher annual exports in March to add signs of recovery to the world's third largest economy.
Japanese economy released its merchandise trade balance total for March, where the actual reading show a deficit with 82.6 billion yen compared with a previous reading of 32.9 billion yen revised to 29.4 billion yen, while expectations was leading to a deficit by -223.2 billion yen.
While the adjusted merchandise trade balance for Japanese economy in March recorded a deficit of 621.3 billion yen, compared with a previous surplus of 313.2 billion yen revised to deficit of 321.4 billion while expectations was -491.1 billion yen
Moreover, Japanese economy released exports trade balance for March where the reading inclined with 5.9, compared with a previous decline of 2.7 while expectations was leading to incline with 0.2.
While annually Japanese exports in March inclined with 10.5, compared with previous incline with 9.2 while expectations were leading to 7.0.
Yet the Bank of Japan is to modify its monetary policy in order to support the nation's growth, but the bank is monitoring closely the Japanese Yen to maintain at suitable levels to Japanese companies during the upcoming period.
Finally, the International Monetary Fund increased its global growth expectations for 2012 which supported consumers confidence about global growth, as well as Japanese economy is expected to grow with 2% during this year, while Yen decline moderately in February after the rising in stimulus plans by BOJ in February.
