Weekend press focus on CNY peg doesn’t increase appetite


MAJOR HEADLINES – PREVIOUS SESSION

  • US Feb. Change in Non-farm Payrolls out at -36k vs. -68k expected and revised -26k prior

  • US Feb. Unemployment Rate out at 9.7% vs. 9.8% expected and unchanged from prior

  • US Feb. Avg. Hourly Earnings out at +0.1% m/m vs. +0.2% expected and +0.2% prior

  • US Jan. Consumer Credit out at +$5 bln vs. -$4.5 bln expected and revised -$4.6 bln prior

  • NZ Q4 Manufacturing Activity out at +0.7% unchanged from revised prior (-5.1% previously)

  • JP Jan. Current Account Balance out at ¥899.8b vs. ¥783.9b expected and ¥900.8b prior

  • JP Feb. Bank Lending out at -1.5% y/y vs. -1.7% expected and -1.5% prior

  • JP Feb. Bankruptcies out at -17.3% y/y vs. -21.8% prior

  • JP Feb. Economy Watchers Survey: Current out at 42.1 vs. 40.1 expected and 38.8 prior

  • JP Feb. Economy Watchers Survey: Outlook out at 44.8 vs. 41.9 prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • Swiss Unemployment (0645)

  • Swiss Retail Sales (0815)

  • EU Sentix Investor Confidence (0930)

  • GE Industrial Production (1100)

  • UK BOE’s Barker to speak (1300)

  • CA Housing Starts (1315)

Market Comments:

The details of the US non-farm payroll report gave risk bulls the ammunition they needed to drive risk, and risk currency pairs, higher into the weekend. Adjusting the headline -36k number for ex-census workers and weather-linked distortions then some pundits are suggesting that the number translates to a positive closer to 20k, yet pessimists would highlight that the previous month’s data was revised higher ( -26k versus -20k) and average hourly earnings were below forecast at +0.1% versus +0.2%. It was more the unchanged unemployment rate at 9.7% that provided the catalyst for “risk-on” with market consensus looking for a slight deterioration to 9.8%.

The perceived better data saw US yields pushing higher with the 10-year yield rising 8bp to 3.68% and as a result USDJPY was able to build on the BOJ GE-linked rally to mount the 90 handle with JPY crosses dragged along with it.

Over the weekend, France’s Sarkozy commented on Greece developments, saying the budget moves were welcomed. He underlined that Greece does not need support today but EU members will stand by their duty if needed in the future. To that end, Greece can count on France’s full support. In addition a front page FT article commented on PBOC governor Zhou’s reference to the CNY peg as “temporary”. Seen as slightly contradictory to the “official” line that China would not bow to external pressure to de-peg the Renmimbi, his comments however did not put time parameters on the temporary label.

Nevertheless, risk appetite was still in place as Asia opened for the week and we saw an extension of the risk-on trade. One-year USDCNY NDFs were priced 150 points lower than the close on Friday while NZDJPY, which had been a big mover on Friday, was given an additional boost from better than expected manufacturing activity data. On the EUR-front, markets reacted to the Sarkozy “commitment” by pushing the EUR higher while comments from Greek central bank governor that “Thursday’s bond issue showed Greece can raise funds in markets and the scenario of Greece needing aid won’t become a reality” also lent support. GBP took some comfort from the latest opinion polls in the UK which showed the Conservative Party widening its lead over the labour party, though not by a sufficient margin to guarantee a parliamentary majority.

It is a slow start to the week on the data front. The European session sees Swiss unemployment and retail sales together with EU Sentix investor confidence and German industrial production on the calendar. The only highlight out of the UK is a speech by BOE’s Barker while North America only has Canada housing starts to look forward to.
For the rest of the week, the US calendar is almost barren of anything of interest until Thursday's trade balance and Friday's retail sales report ( again likely to be heavily affected by weather, though the same store sales report recently showed surprising strength). The RBNZ and Swiss National Bank are out with rate decisions next Thursday though no change in rates is anticipated. We also have an interesting test of USDCAD next week after the pair traded down close to the huge supports below 1.0300 last week with the more important Canadian trade and employment data on Thursday and Friday respectively.