John J. Hardy, FX Consultant, Saxo Bank
FX Update: Risk teetering into the abyss?
British Data good and bad
The bad news in today's European session was that British business investment fell a very ugly -5.8% for Q4 and a shocking -24% for the year-on-year comparison, suggesting that businesses are doing little to expand their activities. The supposedly good news was the Feb. Retail Sales report from the CBI, which showed robust activity for the month. The structural situation in the UK does not look healthy, strong housing market and reasonable retail sales activity notwithstanding. Considering the weak growth levels in the economy, the rise in house prices over the last year could actually be a bad thing for the economy. In any case, despite continued Euro-woes, sterling finds itself slipping against the single currency and faces a key test of the 200-day moving average in EURGBP again after recently rejecting the attempt to trade above that level recently. See chart below.
The bad news in today's European session was that British business investment fell a very ugly -5.8% for Q4 and a shocking -24% for the year-on-year comparison, suggesting that businesses are doing little to expand their activities. The supposedly good news was the Feb. Retail Sales report from the CBI, which showed robust activity for the month. The structural situation in the UK does not look healthy, strong housing market and reasonable retail sales activity notwithstanding. Considering the weak growth levels in the economy, the rise in house prices over the last year could actually be a bad thing for the economy. In any case, despite continued Euro-woes, sterling finds itself slipping against the single currency and faces a key test of the 200-day moving average in EURGBP again after recently rejecting the attempt to trade above that level recently. See chart below.
Chart: EURGBP
The pair is trying through the pivotal 200-day moving average once again after a previous rally attempt was rejected. Recent history shows how important this level is and a close above the average today could put the brakes on the bullish GBP argument (based on technicals and anti-Euro sentiment more than any perceivable logic…) and suggests that Euro sentiment may be improving a few notches despite the multitude of negative stories. (Our favorite way to play for a turn in Euro sentiment remains a long EURAUD position).
The pair is trying through the pivotal 200-day moving average once again after a previous rally attempt was rejected. Recent history shows how important this level is and a close above the average today could put the brakes on the bullish GBP argument (based on technicals and anti-Euro sentiment more than any perceivable logic…) and suggests that Euro sentiment may be improving a few notches despite the multitude of negative stories. (Our favorite way to play for a turn in Euro sentiment remains a long EURAUD position).
Euro woes continue
Greek debt spreads are only slightly wider today, but CDS' (credit default swaps) on countries of the EuroZone periphery have been rising rather sharply over the last few days, suggesting increasing market nervousness about the credibility of the Greek austerity plans and the fiscal state of affairs elsewhere in the EuroZone. The EU Commissioner for Economic and Monetary Affairs Rehn says that an EU mission is returning from Athens and will report on their findings "by tomorrow". Rehn himself is going to Greece next week for talks. For its part, Greece announced that it will be issuing 10-year bonds next week (moved back from this week) while also announcing a new austerity package. Of course, the ongoing story is not so much Greece itself, where the magnitude of the problems are petty compared to the financial wherewithal of the rest of the EU, but rather the danger of contagion, particularly to Spain. So far, Spanish debt spreads are reasonably orderly, as are CDS prices, though the trend in the latter is worth following. See the two charts below and note that the CDS price chart is only through yesterday's closing prices.
Greek debt spreads are only slightly wider today, but CDS' (credit default swaps) on countries of the EuroZone periphery have been rising rather sharply over the last few days, suggesting increasing market nervousness about the credibility of the Greek austerity plans and the fiscal state of affairs elsewhere in the EuroZone. The EU Commissioner for Economic and Monetary Affairs Rehn says that an EU mission is returning from Athens and will report on their findings "by tomorrow". Rehn himself is going to Greece next week for talks. For its part, Greece announced that it will be issuing 10-year bonds next week (moved back from this week) while also announcing a new austerity package. Of course, the ongoing story is not so much Greece itself, where the magnitude of the problems are petty compared to the financial wherewithal of the rest of the EU, but rather the danger of contagion, particularly to Spain. So far, Spanish debt spreads are reasonably orderly, as are CDS prices, though the trend in the latter is worth following. See the two charts below and note that the CDS price chart is only through yesterday's closing prices.
US Data
Absolutely terrible US data today, with jobless claims suddenly pushing close to the 500k level after recent hopes of a declining trend. The latest data suggests the US unemployment rate is in grave danger of heading back above 10.0% in coming months after the sharp drop to 9.7% in Jan. The Durable Goods Orders number was also weak, though this is a volatility data series.
Absolutely terrible US data today, with jobless claims suddenly pushing close to the 500k level after recent hopes of a declining trend. The latest data suggests the US unemployment rate is in grave danger of heading back above 10.0% in coming months after the sharp drop to 9.7% in Jan. The Durable Goods Orders number was also weak, though this is a volatility data series.
Looking ahead
Lots of Japanese data out in the Asian session tonight, though the bigger risk to Yen volatility is any sign of verbal or other intervention from the new Finance Minister, who was trumpeted as a more traditional weak yen proponent, but who has been strangely silent since taking office. EURJPY is trading at new 12-month lows. Barring Japanese intervention, the strong Yen move could remain brutal, especially versus the commodity currencies if risk remains on the defensive here.
Tomorrow, we have the UK and US Q4 growth data revisions as well as the US Chicago PMI, University of Michigan confidence data, and Existing Home Sales.
Lots of Japanese data out in the Asian session tonight, though the bigger risk to Yen volatility is any sign of verbal or other intervention from the new Finance Minister, who was trumpeted as a more traditional weak yen proponent, but who has been strangely silent since taking office. EURJPY is trading at new 12-month lows. Barring Japanese intervention, the strong Yen move could remain brutal, especially versus the commodity currencies if risk remains on the defensive here.
Tomorrow, we have the UK and US Q4 growth data revisions as well as the US Chicago PMI, University of Michigan confidence data, and Existing Home Sales.
Be careful out there...
Economic Data Highlights
- Australia Q4 Private Capital Expenditure rose 5.5% QoQ vs. 2.0% expected and -5.2% in Q3
- New Zealand Feb. NBNZ Business Confidence rose to 50.1 vs. 38.5 in Jan.
- Sweden Feb. Consumer Confidence rose to 13.0 vs. 9.0 expected and 8.5 in Jan.
- Sweden Feb. Manufacturing Confidence rose to 3 vs. -2 expected and -8 in Jan.
- Switzerland Q4 Employment Level fell -0.1% YoY
- Sweden Jan. PPI rose 2.0% MoM and +0.3% YoY vs. +0.6/-1.1% expected, and vs. -0.8% YoY in Dec.
- Sweden Jan. Household Lending was +9.2% YoY vs. +9.3% YoY in Dec.
- Germany Feb. Unemployment Change out at +7k vs. +16k expected and +5k in Jan.
- Germany Feb. Unemployment Rate out at 8.2% as expected and vs. 8.1% in Jan.
- Norway Feb. Unemployment Rate out at 3.2% as expected and vs. 3.3% in Jan.
- UK Q4 Total Business Investment fell -5.8% QoQ and -24.1% YoY vs. +0.1/-18.5% expected, respectively and vs. -20.8% YoY in Q3
- EuroZone Feb. Industrial Confidence out at -13 as expected and vs. -14 in Jan.
- EuroZone Feb. Services Confidence out at 1 vs. -1 expected and -1 in Jan.
- UK Feb. CBI Retail Sales rose to 23 vs. -1 expected and vs. -8 in Jan.
- US Jan. Durable Goods Orders out at +3.0% MoM and -0.6% MoM ex Transportation vs. +1.5/+1.0% expected, respectively.
- US Weekly Initial Jobless Claims out at 496k vs. 460k expected and 474k last week
- US Weekly Continuing Claims rose to 4617k vs. 4570k expected and 4611k last week
Upcoming Economic Calendar Highlights
- US Fed Chairman Bernanke to Testify (1400)
- US Dec. House Price Index (1500)
- UK BoE's Miles to Speak (1800)
- US Fed's Bullard to Speak (1815)
- US Fed's Alvarez to Testify (1900)
- New Zealand Jan. Trade Balance (2145)
- New Zealand Jan. Building Permits (2145)
- Japan Feb. Nomura/JMMA Manufacturing PMI (2315)
- Japan Jan. CPI (2330)
- Japan Jan. Industrial Production (2350)
- Japan Jan. Retail Trade (2350)
- UK Feb. GfK Consumer Confidence Survey (0001)
- Australia Jan. Private Sector Credit (0030)
- Japan Jan. Housing Starts (0500)
