Policy Perceptions Hit Risk
Risk appetite remains soft globally as it is clear the key central banks within G10 are in no mood to offer fresh accommodation. Add softer US data and a weak Spanish auction into the fray and sentiment was bound to suffer. Draghi brushed off talk of exit and gave some pointed remarks at second-round effects, but he was clear that governments had their work cut out to enact the necessary structural reforms to boost growth and he was in no mood to allow policy to assist, especially while transitory inflation pressures remain. On top of the FOMC minutes yesterday, it appears that two of the world’s main ‘liquidity providers’ are now scaling back expectations for new measures and asset markets need to start adjusting to this new framework. Nonetheless, we believe the dip in sentiment will be temporary as the central banks are only acting as such because of better data performance, and in highlighting the multitude or risks and measures at their disposal, insurance policies from the policy side remain in place. Ahead of the Easter Break there are still plenty of output figures waiting to be released and markets will be hoping for no disruptions to the general improvement in growth expectations. Germany and the UK release industrial output figures on April, while for the latter, early indicators should be able to give the BoE some clearer data guidance on where to steer policy, though we don’t expect any change during Thursday’s decision. The focus will remain on the labour market, which dominates policymaking in several economies – the in-line ADP release on Wednesday bodes well for Friday’s payrolls number, while markets are expecting a slight rise in initial claims from the prior week. Canada’s employment report will be out and strong performance in full-time hiring should help CAD continue its advance on the crosses. Ivey PMI figures are also out in Canada and we expect a slight dip to 65 from last month’s 65.5 print. Overnight EURUSD traded 1.3107-1.3237 and USDJPY 82.10-82.93.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank