FX volatility is catching up with the implications of what is going on in Japan has even apparently hit the street level to some degree in the nation’s capital. How will the situation in Japan affect today’s FOMC meeting and new monetary policy statement?
With radiation levels in Tokyo reaching many multiples of normal (and people not finding it a comfort that many multiples of virtually nil may still mean no real radiation threat), panic has hit notonly markets in Japan, but also at the street level to some degree in Japan, as stores are in Tokyo are emptying and some are fleeing the city. To counter the largest crash since 1987, the Bank of Japan is moving into overdrive here, injecting another ¥8 trillion into the banking system and is now being authorized by the government to buy ETF’s and REIT’s. Meanwhile, at the reactors, the news is not as promising as the nuclear scientists. At this point, we can only tip our hats at the heroes on the ground in Japan trying to keep the reactor situation under control. In FX, the most pain is being felt by the pro-cyclical currencies like AUD and CAD and emerging market currencies are also finally waking up to the situation.
Chart: EURJPY
The market is showing its old, old colors here as the safe haven bid in this environment is to bid the JPY and CHF even higher than the US dollar at the moment. EURJPY is therefore correcting rapidly as all of the excitement about ECB rate moves evaporates into thin air as we focus instead on the possibility that central bank expectations may need to be deflated by the world’s third largest economy hitting the wall.
The market is showing its old, old colors here as the safe haven bid in this environment is to bid the JPY and CHF even higher than the US dollar at the moment. EURJPY is therefore correcting rapidly as all of the excitement about ECB rate moves evaporates into thin air as we focus instead on the possibility that central bank expectations may need to be deflated by the world’s third largest economy hitting the wall.
FOMC preview
The FOMC meeting is up later today. With the situation in Japan so white hot at the moment and with this being a one-day meeting, it is highly unlikely that we get anything of interest from Bernanke and company today. Dissenting voices may suddenly become non-dissenting ones as the Fed will want to speak through a single mouthpiece today. The statement will like contain very few changes to the most recent language, with fresh insertions related to the FOMC standing at the ready in the event that the situation in Japan proves disruptive. In an isolated sense, this would appear USD bearish and the question further out whether the events in Japan provide the excuse for a move into a QE3. But as for the USD bearishness angle, we must remember that as long as risk is off, that there is far more potential air to let out of the policy expectations balloons of virtually every other central bank in the world.
The FOMC meeting is up later today. With the situation in Japan so white hot at the moment and with this being a one-day meeting, it is highly unlikely that we get anything of interest from Bernanke and company today. Dissenting voices may suddenly become non-dissenting ones as the Fed will want to speak through a single mouthpiece today. The statement will like contain very few changes to the most recent language, with fresh insertions related to the FOMC standing at the ready in the event that the situation in Japan proves disruptive. In an isolated sense, this would appear USD bearish and the question further out whether the events in Japan provide the excuse for a move into a QE3. But as for the USD bearishness angle, we must remember that as long as risk is off, that there is far more potential air to let out of the policy expectations balloons of virtually every other central bank in the world.
Odds and ends
The US Empire Manufacturing survey was stronger than expected, though the differential between Prices Receive and Prices Paid (20.78 vs. 53.25) was at its most disadvantageous in recent history, suggesting increased pressure on manufacturers’ margins. New orders and shipments were down sharply, though the employment related sub-indices registered solid improvements.
The US Empire Manufacturing survey was stronger than expected, though the differential between Prices Receive and Prices Paid (20.78 vs. 53.25) was at its most disadvantageous in recent history, suggesting increased pressure on manufacturers’ margins. New orders and shipments were down sharply, though the employment related sub-indices registered solid improvements.
Over on the Arabian peninsula, it appears Saudi Arabia is basically being invited to occupy Bahrain to put down protests there.
It is almost humorous to see the latest round of bleating about inflation from the ECB’s Bini Smaghi in this environment, as crude oil is off over 5 dollars and the March ’12 Euribor contract has spiked almost 20 ticks higher overnight as the market deflates CB expectations around the world on the events in Japan. Some intelligence outfit was also out suggesting that the ECB will hike in May regardless of the situation in Japan. This
It is almost humorous to see the latest round of bleating about inflation from the ECB’s Bini Smaghi in this environment, as crude oil is off over 5 dollars and the March ’12 Euribor contract has spiked almost 20 ticks higher overnight as the market deflates CB expectations around the world on the events in Japan. Some intelligence outfit was also out suggesting that the ECB will hike in May regardless of the situation in Japan. This
Economic Data Highlights
- Norway Q1 Consumer Confidence out at 30.3 vs. 27.7 in Q4
- Norway Feb. Trade Balance out at 30.8B vs. 35.7B in Jan.
- UK Jan. DCLG UK House Prices rose +0.5% YoY vs. 2.3% expected and +3.8% in Dec.
- Germany Mar. ZEW Survey out at 14.1 vs. 15.9 expected and 15.7 in Feb.
- Canada Q4 Labor Productivity rose +0.5% QoQ vs. +0.2% expected and +0.4% in Q3
- US Mar. Empire Manufacturing out at 17.5 vs. 16.1 expected and 15.43 in Feb.
- US Feb. Import Price Index out at +1.4% MoM and 6.9% YoY vs. +0.9%/6.3% expected, respectively and vs. +5.4% YoY in Jan.
- US Jan. Total Net TIC Flows out at +32.5B vs. +37.5B expected and +49.7B in Dec.
- US Jan. Net Long-term TIC Flows out at +51.5B vss. +55B expected and $62.5B in Dec.
Upcoming Economic Calendar Highlights (all times GMT)
- US Mar. NAHB Housing Market Index (1400)
- US FOMC Rate Decision (1815)
- US Weekly DoE Crude Oil/Product Inventories (2030)
- New Zealand Q1 Westpac NZ Consumer Confidence (2100)
- Australia Q4 Dwelling Starts (0030)
- China Jan. Leading Economic Index (0200)
- Japan BoJ Monthly Economic Report (0500)
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