With all eyes on holiday and/or the royals’ nuptials in the London, currency moves have been relatively muted, though the USD remains weak. Interesting developments are keeping the Canadian dollar even weaker than its US counterpart at the moment. What gives?
Canada election ahead
Canada goes to the polls this coming Monday. Until very recently, the snap election was expected to simply solidify the existing government’s base and the view on CAD was relatively positive, considering its pro-cylical credentials and exposure to the strong commodities theme, etc. Harper’s Conservatives have even promised further pro-business measures to which the market traditionally responds positively. But now a dark horse party, the NDP, is surging in the polls and has a very different take on the right medicine for the nation’s economy. It is looking to raise taxes on large companies and ratchet social spending higher. While the NDP will not garnet enough support to form a minority government, it is introducing enough uncertainty about the Conservative chances at forming a minority government that CAD has sharply underperformed other pro-cyclical assets and currencies lately. Those looking to fade this development might have a glance at potential downside in AUDCAD in the wake of the election.
Canada goes to the polls this coming Monday. Until very recently, the snap election was expected to simply solidify the existing government’s base and the view on CAD was relatively positive, considering its pro-cylical credentials and exposure to the strong commodities theme, etc. Harper’s Conservatives have even promised further pro-business measures to which the market traditionally responds positively. But now a dark horse party, the NDP, is surging in the polls and has a very different take on the right medicine for the nation’s economy. It is looking to raise taxes on large companies and ratchet social spending higher. While the NDP will not garnet enough support to form a minority government, it is introducing enough uncertainty about the Conservative chances at forming a minority government that CAD has sharply underperformed other pro-cyclical assets and currencies lately. Those looking to fade this development might have a glance at potential downside in AUDCAD in the wake of the election.
Odds and Ends
The True Finns might behave remarkably untrue to their election campaign promises of blocking all efforts aimed at bailing out Portugal in a bid to become a partner in a new coalition government with the largest National Coalition party. Apparently, a softening of the True Finn’s stance may involve a bit of horsetrading as measures aimed at domestic job creation may be offered to the True Finns in exchange for their vote on complicity with an EFSF bailout of Portugal. This political pragmatism is in sharp contrast to the fears generated by the True Finns stance during the election season. As a reminder, a Portuguese bailout would require a unanimous vote from all Eurozone members and the Finnish vote on such a measure would require a majority approval vote by its parliament. Eurozone sovereign debt spreads outside “PIG” have improved over the last two days of trading.
The True Finns might behave remarkably untrue to their election campaign promises of blocking all efforts aimed at bailing out Portugal in a bid to become a partner in a new coalition government with the largest National Coalition party. Apparently, a softening of the True Finn’s stance may involve a bit of horsetrading as measures aimed at domestic job creation may be offered to the True Finns in exchange for their vote on complicity with an EFSF bailout of Portugal. This political pragmatism is in sharp contrast to the fears generated by the True Finns stance during the election season. As a reminder, a Portuguese bailout would require a unanimous vote from all Eurozone members and the Finnish vote on such a measure would require a majority approval vote by its parliament. Eurozone sovereign debt spreads outside “PIG” have improved over the last two days of trading.
Canada posted an ugly GDP growth figure for February, when the economy actually turned negative for the month. Apparently there is no real takeaway from this data point, as most of it was attributable to lower production from manufacturers, including a handful of outright factory shutdowns for maintenance in the year’s coldest month. Canadian data has been generally strong of late. Still, there seems to be some hesitancy in jumping into CAD with the upcoming May 2 election.
Bloomberg’s Pesek penned an excellent column on the crisis in Japan and the amazing complacency in the marketplace (Japan’s bond yields, etc.) despite the desperate times the country faces. “Japan is in bizarre economic territory” indeed. Is there ever a trigger moment in the nation’s history when the treasury simply can’t issue more bonds – when will the straw be placed that breaks the debt market’s back in that country? In the meantime, the JPY is able to find support as long as government bonds find support and the waters appear relatively calm. The fat tail lurks out there for Japan’s market and that tail is getting fatter by the day, as Pesek’s column suggests.
Looking ahead
With extremely high leverage in the US economy, there are no sure things in this world, save for the fact that risk is far higher than this market appreciates at the moment. With the end of QE2 approaching in two months now, the clock is running down on this complacent environment.
With extremely high leverage in the US economy, there are no sure things in this world, save for the fact that risk is far higher than this market appreciates at the moment. With the end of QE2 approaching in two months now, the clock is running down on this complacent environment.
The Chicago PMI out just now came in slightly below expectations and well below the March data point, but is still very strong at 67.6. This was the third regional survey to disappoint this month and suggests some of the momentum may be coming out of the US manufacturing sector. More confirmation on that possible next week, though the ISM non-manufacturing remains the most important of these surveys considering the dominance of the services sector.
Look out for the University of Michigan final reading for April (likely to be adjusted lower due to acceleration higher in gas prices?). Also remember that the UK is out for a holiday on Monday as well.
Consider being very careful out there as well and have a great weekend.
Consider being very careful out there as well and have a great weekend.
Economic Data Highlights
- New Zealand Mar. Trade Balance out at 464M vs. 200M expected and 193M in Feb.
- Australia Mar. RP Data- Rismark House Price Index rose +0.2% MoM (s.a.) vs. 0.0% in Feb.
- China Apr. MNI Business Conditions Survey out at 69.28 vs. 69.33 in Mar.
- China Apr. HSBC Manufacturing PMI out at 51.8 vs. 51.8 in Mar.
- Germany Mar. Retail Sales out at -2.1% MoM and -3.5% YoY vs. +0.2%/+1.4% expected, respectively and vs. +1.5% YoY in Feb.
- Norway Apr. Unemployment Rate out at +2.8% as expected and vs. 2.0% in Mar.
- Sweden Mar. Household Lending out at +7.3% YoY vs. +7.5% in Feb.
- Sweden Retail Sales out at -0.8% MoM and +0.7% YoY vs. +0.2%/+2.8% expected, respectively and vs. +2.8% YoY in Feb.
- EuroZone Apr. EuroZone CPI Estimate out at +2.8% YoY vs. +2.7% expected and +2.6% in Mar.
- EuroZone Mar. Unemployment Rate out unchanged at 9.9% as expected
- Switzerland Apr. KOF Swiss Leading Indicator out at 2.29 vs. 2.20 expected and 2.25 in Mar.
- Canada Feb. GDP out at -0.2% MoM and +2.9% YoY vs. 0.0%/+3.1% expected, respectively and vs. +3.3% YoY in Jan.
- US Q1 Employment Cost Index out at +0.6% QoQ vs. +0.5% expected and +0.4% in Q4
- US Mar. Personal Income rose +0.5% MoM vs. +0.4% expected and +0.4% in Feb.
- US Mar. Personal Spending rose +0.6% MoM vs. 0.5% expected and +0.9% in Feb.
- US Mar. PCE Core out at +0.1% MoM and +0.9% YoY, both as expected and vs. +0.9% YoY in Feb.
Upcoming Economic Calendar Highlights (all times GMT)
- US Chicago PMI (1345)
- US Apr. Final University of Michigan Confidence (1355)
- US Apr. NAPM Milwaukee (1400)
- US Fed’s Bernanke to Speak at Fed Conference (1630)
- China Apr. PMI Manufacturing (Sun 0100)
- UK Apr. Hometrack Housing Survey (Sun 2301)
- Australia Apr. AiG Performance of Manufacturing Index (2330)
- Australia Q1 House Price (Mon 0130)
- Japan Mar. Labor Cash Earnings (Mon 0130)
- Japan Apr. Vehicle Sales (Mon 0500)
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