Most of it contrary to sentiment from the previous NY session


MAJOR HEADLINES – PREVIOUS SESSION

  • US Mar. Dallas Fed Manufacturing Activity out at -49.0 vs. -52.0 expected and -57.3 prior

  • UK GfK Mar. Consumer Confidence out at -30 vs. -35 expected and -35 prior

  • NZ Mar. Business Confidence out at -39.3 vs. -41.2 prior

  • JP Feb. Jobless rate out at 4.4% vs. 4.3% expected and 4.1% prior

  • JP Feb. Household Spending out at -3.5% y/y vs. -4.7% expected and -5.9% prior

  • AU Feb Private sector Credit out at flat m/m, +5.4% y/y vs. +0.5%, +5.8% expected

  • JP Feb. Housing Starts out at -24.9% y/y vs. -18.7% prior

  • JP Feb. Construction Orders out at -17.7% y/y vs. -38.3% prior

  • JP Small Business Confidence Index out at 30.4vs. 24.3 expected and 25.0 prior


THEMES TO WATCH – UPCOMING SESSION

  • Sweden Business Confidence (0815)

  • GE Unemployment (0855)

  • CA Jan GDP (1230)

  • CA Industrial Product/Raw Material Price Index (1230)

  • US Fed’s Stern speaks (1300)

  • US Chicago PMI (1345)

  • US Consumer Confidence (1400)

  • US Fed’s Plosser speaks (1700)

Market Comment:

The final trading day of the month/quarter and Japanese financial year-end saw an explosion in activity in JPY-related instruments during the Asian session. Early talk of heavy demand for USDJPY into the Tokyo fix proved correct as the pair rose almost 1 big figure to reclaim the 98.0 handle, and has since remained stubbornly above there despite regular exporter sales. Rumours are also circulating in Asia that the USD demand is not done, and that the London fix will see an extension of this theme.

Asian stock markets defied the doom and gloom passed on from wall St, with the Nikkei chalking gains of over 1% after the break. Granted, there may have been some window-dressing of portfolios for the year-end, and sure enough we retreated back into negative territory towards the close. Early comments from Finance Minister Yosano on further stimulus measures and an FT article suggesting the LDP is to propose to the government that the Banks Shareholdings Purchase Corporation be allowed to buy a wider portfolio of shares had helped sentiment. The PSBC had earlier been given a Y20 tln budget to buy corporate shares held by banks, and the article suggests the LDP wants this broadened to include other shares. Yosano hinted that a new stimulus package was due to be compiled by mid-April but will be revealed by PM Aso this afternoon. Local chatter suggests that this package could involve another Y20 tln of measures. The mood filtered through the region and gave risk appetite a minor lift, causing a rise in the JPY-linked crosses. The buying of JPY crosses proved to be the major factor driving direction in the major currencies rather than currency-specific news or sentiment.

It was not all good news on the Japan front though, with economic data continuing to paint an extremely gloomy picture. The unemployment rate rose to a 3-year high of 4.4% in Feb from 4.1% the previous month and was above expectations of a rise to 4.3%. Household spending also fell 3.5% y/y in February. Wage earnings tumbled by a further 2.7% in Feb compared to a year earlier while Av overtime pay, treated as a good barometer of corporate activity, posted its largest ever fall on record, collapsing 18.5% y/y after a revised 10.9% fall in January.

The AUD also joined the bandwagon, rising steadily throughout the session. AUDJPY buying was augmented by M&A news that a Canadian pension fund had offered $930 mln to buy Australian investment firm Macquarie Communications Infrastructure Group. Meanwhile, RBA Deputy Governor Ric Battelino confirmed that there remains scope for further AUD interest rate cuts, though he did add the comment “if circumstances require”. Furthermore, he was optimistic on prospects for China, Australia’s biggest trading partner, saying there were signs that the aggressive monetary and fiscal stimulus were starting to work through. Domestically, he noted that Australian households were better placed than elsewhere with debt levels equal to 1-1/2 year’s income but with assets currently valued at 4 years worth of income. Analysts turned marginally more hawkish on this addition, and sentiment turned more in favour of a no-change result at the next RBA meeting in April rather than a 50bp cut. This lent an additional air of support to the already rising AUD.