Weekend news added more pressure on the EUR as Asian markets opened with local Greek press reporting that the Private Sector Involvement plan (PSI) discussions were very difficult and not progressing well with rumours circulating that the International Monetary Fund is now pushing for a forced debt restructuring and an 80 percent haircut for bondholders. In addition, the Federal Reserve’s Bullard (non-voting member) commented that earlier QE measures by the Fed had successfully boosted inflation and rescued the economy from deflation with further measures being available if necessary but likely not needed. This added more fuel to the US dollar’s rally and helped the US index to its highest level since mid-September 2010.
Also over the weekend, China released loans and money supply data. Both gave an indication that the authorities are loosening credit conditions with new Yuan loans increasing to Yuan 640.5 bln in December from Yuan 562.2 bln the previous month and well above consensus estimates of Yuan 575 bln. At the same time, M2 money supply grew 13.6 percent y/y during the same month, rising from 12.7 percent in November.
In other data, the China Daily reported that sales on new homes in Beijing over the New Year fell a dramatic 60 percent compared to the same time last year. It was the lowest housing trade volume over the last 10 years and testimony that the 2011 cooling measures are taking effect and helping to deflate the reported housing bubble.
After the early EUR sell-off, risk currencies were also trading on the soft side with risk appetite sadly lacking across the board. Asian equity markets were generally in the red (though the Shanghai Compositwas e surprisingly up 1.5 percent at lunch!) and a softer AUD was given another nudge lower following some disappointing Oz retail sales data. November’s retail sales were flat m/m, lower than the +0.4 percent expected and the 0.2 percent recorded in October, but with hopes that the cautious Ozzie consumer left his Christmas shopping to the last minute to be reflected in next month’s data.
The EUR’s weakness was already evident on Friday following a combination of weak European data releases and strong US ones. First off, Euro-zone retail sales and confidence indicators were weak and compounded by very soft and disappointing German factory orders (-4.8 percent m/m and -4.3 percent y/y) extending the downward trend that started mid-2011 to reach levels last seen mid-2010. Stronger headline US payrolls data compounded that weakness (USD strength) as non-farm payrolls beat forecasts (200k versus 155k expected) with a hefty increase reported in private payrolls. The unemployment rate was its strongest since March 2009 at 8.5 percent but a lot of the then outperformance can be attributed to a fall in the participation rate (evidenced by a lower 176k change in employment from the household employment survey. However, the EUR’s slide was slow and gradual with extreme short positioning urging some caution. The latest IMM data shows that EUR short positions reached a new record high as of last Tuesday.
Apart from the data, watch out for possible headlines from yet another Merkel/Sarkozy summit which is scheduled to start at 1230GMT.
Data Highlights
US Dec. Change in Non-farm Payrolls out at 200k vs. 155k expected and revised 100k prior
US Dec. Unemployment Rate out at 8.5% vs. 8.7% expected and revised 8.7% prior
US Dec. Avg. Hourly Earnings out at +0.2% m/m, +2.1% y/y, both as expected, vs. revised flat/1.9% prior resp.
China Dec. New Yuan Loans out at 640.5 bln vs. 575 bln expected and 562.2 bln prior
China Dec. M2 Money Supply out at +13.6% y/y vs. 12.9% expected and 12.7% prior
NZ Nov. Trade Balance out at –NZ$308 mln vs. –NZ$300 mln expected and revised –NZ$228 mln prior
AU Dec. Performance of Construction Index out at 41.0 vs. 39.6 prior
AU Nov. HIA New Home Sales out at +6.8% m/m vs. revised 2.8% prior
UK Dec. Lloyds Employment Confidence out at -75, unchanged from prior
AU Nov. Retail Sales out at flat m/m vs. +0.4% expected and +0.2% prior
Upcoming Economic Calendar Highlights
(All Times GMT)
Swiss Unemployment Rate (0645)
GE Trade Data (0700)
Swiss Retail Sales (0815)
Sweden Service Production (0830)
Norway Credit Indicator Growth (0900)
EU Sentix Investor Confidence (0930)
GE Industrial Production (1100)
EU Merkel/Sarkozy Summit (1230)
CA Building Permits (1330)
CA Business Outlook Future Sales (1530)
CA BOC Senior Loan Officer Survey (1530)
US Fed’s Lockhart to speak (1740)
US Consumer Credit (2000)
Andrew Robinson
SAXO BANK