Anything goes today with the end of month fixing circus. Then it's on to big Thursday and Friday event risks.
MAJOR HEADLINES – PREVIOUS SESSION
- Japan Mar. Small Business Confidence out at 30.4 vs. 24.3 expected and 25.0 in Feb.
- Switzerland Feb. UBS Consumption Indicator out at 0.886 vs. 0.922 in Jan.
- Sweden Mar. Consumer Confidence out at -16.5 vs. -13.8 expected and -14.6 in Feb.
- Sweden Mar. Manufacturing Confidence out at -42. vs. -34 expected and -35 in Feb.
- Germany Mar. Unemployment Change rose to 69k vs. 52k expected and 50k in Feb.
- Germany Mar. Unemployment Rate out at 8.1% vs. 8.0% expected and 8.0% in Feb.
- EuroZone Mar. CPI Estimate out at +0.6% YoY vs. +0.7% expected and +1.2% in Feb.
- Canada Jan. GDP out at -0.7% MoM as expected and vs. -1.0% in Dec.
- Canada Feb. Raw Materials Price Index out at +1.7% MoM vs. +0.6% expected
THEMES TO WATCH – UPCOMING SESSION
- US Jan. S&P/CaseShiller Composite 20 Home Price Index (1300)
- US Fed's Stern to Speak (1315)
- US Mar. Chicago PMI (1345)
- US Mar. Consumer Confidence (1400)
- US Fed's Plosser to Speak (1700)
- US Weekly ABC Consumer Confidence (2100)
- Australia Mar. AiG Performance of Manufacturing Index (2230)
- Japan Q1 Tankan Survey (2350)
- Australia Feb. Retail Sales (0030)
- Australia Feb. Building Approvals (0030)
Market Comment:
The JPY was sharply weaker overnight on a number of factors, but most of all probably due to varying end of month/financial year fixing needs after its recent marked strengthening. The headlines touted Aso's lack of details in requesting a stimulus package as the reason, though this smacks of a search for excuses. It is clear considering the desperate state of the Japanese economy that heavy stimulus measures will be in the pipeline and Aso has asked for a new package by mid month. The bigger question is whether anything can ever be done to stimulate Japanese domestic demand or whether the only hope for the Japanese economy lies in resurgent export markets. Considering the bleak demographics of Japan's aging population, the latter appears the most likely unfortunately.
A wildcard thrown into the mix overnight for the JPY came in the form of North Korean war threats if Japan made any effort to shoot down the DPRK's attempted launch of a "communications" satellite. Before calling for a weaker JPY here, we'd like to see the start of the new year and the direction of interest rates and risk appetite. It would seem that the JPY could see at least a brief resurgence in April if all of these factors are supportive (interest rates and commodities falling, risk appetite declining). One might consider expressing the view with a two-three week option trade. Watch out for the Q1 Tankan Survey tonight, which will be the first big data point to kick off the new financial year.
The EUR survived a downgrade by the S&P of Irish debt late yesterday rather well as EUR surged in today's trade. The ratings agency downgraded the debt to AA with a negative outlook, citing Ireland's widening fiscal imbalances and still shaky banking system. Looking at the other key intra-Europe bond spreads, we note that this news did not trigger a wider contagion. The so-called PIGS (Portugal, Italy, Greece, Spain) spreads have been relatively stable over the last couple of months. The 100-day moving average in EURUSD proved an important support level indeed yesterday.
Late yesterday, the FT published an article about its interview with Canadian PM Harper, who said that Canadian banks should take advantage of their strong balance sheets with overseas expansion. The strong Canadian banks are both a positive for CAD (less need for massively expansive monetary stimulus/bailouts/competitive devaluation), but also a potential negative due to the potential for strong capital outflows if Canadian banks begin a round of global vulture investing. See the Charts section below for a technical view on USDCAD.
The G20 communique tomorrow may be a bit of an anti-climax considering the degree to which the various proposals have already been leaked and the statements that no major currency-related rhetoric would be included, other than the empty rhetoric that the G20 will refrain from currency devaluations (too late for this, we're afraid...). The key to the post-G20 environment may simply lie in how risk appetite responds once the meeting is behind us. In other words, will the markets express a strong hope that the G20 stimulus and financial market regulation measures and a reinvigorated IMF will have a chance at stabilizing the stresses in the global economy? It seems very appropriate that equity markets are poised right around the fulcrum of key support (the 55-day moving average that was taken out yesterday in the S&P, but not convincingly as we are about to open the day back above this average) as we go into this big event risk.
Chart: USDCAD
USDCAD saw a remarkable one-day spring higher yesterday as the recent rally in risk appetite suddenly saw a hiccup. Note that the rally stopped right at the 21-day moving average, which has been a key are of contention in recent history. The CAD bears probably need risk aversion and a move back above 1.2800 to rekindle hopes of a more convincing 1.3000 break.
