Ozzie trade data better than expected, but still shows a widening deficit


MAJOR HEADLINES – PREVIOUS SESSION

  • US Dec. Pending Home Sales out at +1.0% m/m, as expected vs. revised -16.4% prior 

  • US Weekly ABC Consumer Confidence out at -49 vs. -45 expected and -48 prior 

  • US Jan. Domestic Vehicle Sales out at 8.19m vs. 8.39m expected and 8.63m prior 

  • AU Jan. AiG Performance of Services Index out at 47.4 vs. 50.0 prior 

  • UK Jan. Nationwide Consumer Confidence out at 73 vs. 70 expected and revised 70 prior 

  •  AU Dec. Trade Balance out at –A$2252m vs. –A$2400m expected and revised –A$1728m prior 

  • HK Jan. PMI out at 55.8 vs. 55.2 prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • GE Services PMI (0855)

  • EU Services/Composite PMI (0900) 

  • Norway Unemployment (0900) 

  • UK Services PMI (0930) 

  • EU Euro-zone Retail Sales (1000) 

  • US MBA Mortgage Applications (1200) 

  • US Challenger Job Cuts (1230) 

  • Norway Norges Bank Rate Announcement (1300) 

  • US ADP Employment Change (1315) 

  • US ISM Non-manufacturing (1500) 

  • US Treasury’s Geithner to speak (1500) 

  • US Fed’s Warsh to speak (1800)

Market Comments:

Currency markets spent the overnight session trapped in ranges after the RBA’s surprise no-change yesterday. There was a general onus on short-covering in the majors and the USD drifted lower as a whole. News that Greece had discovered some €40 bln in “hidden debt” was shrugged off with the EUR seeing persistent demand.
GBP was capped ahead of the 1.60 mark but AUD found some support sub-0.88 after the plunge post-RBA. Data had little influence on proceedings though UK construction PMI was 48.6 vs. the 47.0 median. US data showed pending home sales recovering from pathetically low levels in November (+1.0%) and up 10.5% year-on-year vs. 18.9% in November. Later, the US Domestic Vehicle Sales were a bit lower than expected in January at 8.19M and well off December's pace of 8.63M.

The EUR continued to find a base at the start of the Asian session following an FT report that Brussels has backed the Greek plan to bring back its budget deficit to less than 3% of GDP by the end of 2012. Per the article, the European Commission said it would endorse Athens plan to bring back under control its public sector deficit but EU's Barroso warned that the proposal, though feasible, was subject to risks. Today’s formal response by the EU Commission to Greece's austerity plan is also expected to warn that it would not tolerate any slippage in the target and will, if necessary, demand tougher government action to ensure it stays on course. The key for markets though, is that a Greek sovereign collapse and hence a Euro break up seems to be temporarily off the agenda.

Asia saw a series of data releases during the session though the impact on currencies was rather marginalized.
First off, the UK Nationwide consumer confidence rallied to 73 further from its upwardly-revised 70 in December. A hesitant UK consumer was reflected in the spending component which fell 12 points though the present situation and expectations indices were both a tad higher.

Australian trade balance for December showed a widening of the deficit to A$2.25 bln from A$1.73 bln, though this was not quite as bad as median forecasts which had expected a worse A$2.4 bln deficit. AUD staged a brief 10-pip rally after the data but momentum soon petered out. We were back in ranges within a short time.

The momentum in risk appetite hit a minor speed bump in the Asian morning on news that Fitch had downgraded two mid-sized Chinese banks (Citic and China Merchants Bank) to D from C/D however this was not enough to knock prices through respective support levels. The Fitch move marked the first time in 6 years that the ratings agency had downgraded a Chinese bank and a subsequent WSJ article noted the move highlights China banks’ potential higher exposure to non-performing loans after the lending spree last year.

Following the range-bound theme over the last 24 hours we have a bit more on the data plate that may dictate potential direction. The Norwegian central bank kicks off the slew of central bank interest arte meetings over the next few days. The central bank is widely expected to pause tomorrow after its December hike, leaving the rate at 1.75%, but about 170 bps of hiking is priced into the yield curve over the next 12 months. This is down some 20 bps or so from a few weeks ago as are most central bank projections. We also see services PMI data from the Euro-zone and UK while Norway’s unemployment rate and Euro-zone retail sales are also on tap. The non-manufacturing ISM will be the focus for US markets along with the private ADP employment report and Challenger job cuts, the customary prelude to Friday’s non-farm payroll and unemployment reports.