Payrolls Ahead
Risk managed to end Thursday on a firmer note despite some wobbles out of Europe throughout the day. The closely watched Spanish auction failed to excite markets. Although the Spanish Treasury secured their target allocation and the bid-to-cover ratios looked high, our Fixed Income team noted that the cutoff prices were very low. Given prices are already high (Spanish 10y yields remain sub 5% as of writing) relative to recent levels, investor caution was bound to resurface, especially with talks over Greece continuing. The focus of the debt negotiations have clearly shifted towards public sector involvement and the ECB is likely to face close scrutiny up ahead regarding its own participation. Nevertheless, the euro did receive a healthy bounce on the back of comments coming out of Beijing. Speaking with visiting German Chancellor Merkel, Chinese Premier Wen Jiabao noted that China was considering ‘greater involvement’ in the EFSF and ESM stabilisation funds. However, he added that China was still ‘researching’ ways to participate, suggesting that SAFE or other relevant entities are not yet active in the market for the facility. There was no mention of boosts in IMF funding, which is much sought by both the IMF and the European Union. Markets were also boosted by a better initials jobless claims report, which fell by 10k, more than expected. The payrolls report on Friday is the key release – markets are looking for a slightly softer 145k print (UBSe. 130k) and the unemployment rate is expected to remain stable at 8.5%. Fed Chairman Bernanke’s testimony before the House Budget Committee did not reveal much new, though he noted that the Fed does not want higher inflation, and expressed a readiness to withdrawal liquidity when required, though this is probably several years away. He also called the dollar a ‘safe haven’, but again expressed concern over the US’ fiscal condition. EURUSD traded 1.3086-1.3196 and USDJPY 76.05-76.21.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank