DAILY MARKET COMMENTARY
5 April 2012 – 8:00 GMT
Thusday
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Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
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FUNDAMENTAL ANALYSIS at 0800 GMT
WORLD
Subdued trading in Asia meant EURUSD was confined to a 25-pip range. The price action in USDJPY and AUDUSD was somewhat more lively, but flows were light across the board in pre-holiday trade. Newswires would have been mostly silent were it not for Japan's Finance Minister Azumi defending his intervention policy. He said that even if there were differences of opinion with the US on yen intervention, this would not affect Japan's stance. Asian equity markets were mixed, and did not seemly overly perturbed by yesterday's sell-off in Europe.
Meanwhile the shift in FOMC opinion continues. San Francisco Fed President Williams - traditionally a notable dove - conceded that the argument for a new dose of monetary stimulus is not that strong now. Having said that, he still thinks it is "essential that we keep strong monetary stimulus in place" but was also keen to emphasise that "our unusually stimulative monetary policy won't last forever".
Today's Swiss CPI number has the potential to make headlines - our Switzerland economist expects the lowest annualized reading since Bloomberg records began in 1971. German and the UK industrial output figures are due too. The BoE also delivers its latest policy verdict – our analysts are in line with consensus opinion and expects no change to policy settings despite two dovish dissenters emerging at the March meeting. In the US, the focus will remain on the labour market. Wednesday's in-line ADP release on bodes well for Friday's payrolls number, while markets are expecting a slight rise today in initial jobless claims. Canada's employment report will be out too, and a strong performance in full-time hiring would help CAD continue its advance on the crosses.
EUR
The ECB chose to leave policy on hold overnight, and net-net Draghi appeared to be more concerned about weak growth prospects rather than inflation. He noted that risks to growth from the sovereign debt crisis were still in place, and the soft growth environment will lead to inflation heading to below 2% in 2013. Discussion of an exit strategy was deemed 'premature'.
Despite the relatively benign interpretation on inflation, Draghi essentially warned national governments not to expect any 'stimulus' favours in the form of monetary policy. He maintained that it was up to structural reforms by national governments to boost competitiveness, and it appears he does not see any scope for looser policy in the near-term.
The Spanish Economy Ministry noted that the country has already covered 47% of the planned issuance for 2012, although we note that a larger than expected deficit along with accelerated sovereign payments into the ESM means that the issuance target may need to be revised upwards. Spanish Prime Minister Rajoy said the challenge ahead is 'giant'.
EU Economics Commissioner Rehn said that the EU may need to provide a 'bridge' for Portugal's market return. This may be the first formal acknowledgement that the current rescue plan (which calls for Portugal issuing EUR 10 bn in bonds in 2013) may need to be revised.
Austria's central bank announced it would join the Bundesbank in no longer accepting sovereign-guaranteed bank bonds as collateral if the sovereigns in question are in receipt of EU/IMF aid payments. Draghi has already suggested the impact will be minimal.
IMF's Christine Lagarde urged the US to help back-stop the Euro zone debt crisis, as she argued the need for more 'firepower' to the tune of $500 bn to tackle the global financial crisis. We expect to hear a lot more about this proposition at the IMF/World-Bank meetings on April 20-22.
GBP
The key services PMI beat expectations at 55.3 (cons. 53.4). In addition Halifax House Prices rebounded by 2.2% m/m - the highest monthly jump in three years. The upsurge is probably due to buyers trying to take advantage of the stamp duty holiday which expired at the end of March.
Our analysts note that the PMI survey has a mixed record when it comes to predicting short term GDP outturn. That said it remains an important lead indicator for the MPC, which meets on Thursday. No change to the asset purchase target is expected, despite two MPC members dissenting in favour of further Gilt purchases at the March policy meeting.
CHF
Swiss CPI will be released on Thursday. The market is looking for a -1.1% y/y decline, but our Switzerland economist is even more pessimistic. He expects a -1.3% y/y drop, which would be the weakest inflation print since Bloomberg records began in 1971.
Local reports suggest the Swiss Federal Council could announce their decision on SNB board appointments at an upcoming weekly meeting. Given the announcement was not made yesterday, next Wednesday's meeting may provide the next opportunity to do so.
CAD
Canada's employment numbers will be released on Thursday. We expect a net gain of +10k jobs, while the unemployment rate is expected to remain steady at 7.4%. As usual the full-time/part-time mix will be a critical determinant of how CAD reacts.
Bank of Canada Deputy Governor Boivin said that monetary policy must 'obey' the long run speed limit of the economy, and that the bank would take 'whatever action appropriate' to achieve its 2% inflation target over the medium term. As the Fed is moving away from fresh stimulus, the comments suggest the BoC can also to adopt a less dovish stance.
A. White
Analyst at Fibosignals.com
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