At the start of the Asian session we heard more rumours about an imminent China easing, which set risk off on a solid footing for the session. The China chatter came from a Xinhua news agency piece “announcing” (according to an un-named central bank official) that the central bank was to increase reverse repo operations and cut the reserve ratio requirement to release liquidity. Consistent with the easing policy bias that has been in place since late 2011 he added “We will take comprehensive and effective measures to make pre-emptive policy adjustments at appropriate time and pace so as to guide steady and appropriate growth in money and credit supply, to keep banking system liquidity at a reasonable level and to support stable and relatively fast economic growth”. The prospective announcement comes despite last week’s data showing a surge in bank lending in March and an increase in the broad M2 money supply to 3-month highs.
Other than the China rumour, focus was Japan-centric with trade data for March and a speech from BOJ governor Shirakawa hitting the wires. Another deficit was recorded for March, but at a much-reduced level than market estimates. Exports unexpectedly turned positive for the first time in 6 months with 5.9 percent annual gains but high energy costs saw imports rise 10.5 percent y/y resulting in a deficit of ¥82.6 bln (consensus estimates -¥223.2 bln after a ¥29.4 bln surplus last month). Exports to the US were impressive on auto demand but exports to China were weak, falling 5.9 percent after declining 13.9 percent the previous month.
BOJ governor Shirakawa repeated the same phrases as his deputy yesterday, saying the BOJ is truly committed to powerful monetary easing, and warned that, if a central bank cannot deliver, public confidence in institutions will be eroded. He added that many more challenges lie ahead before the global economy can make further advances, and reinforced that policy must take into account not just inflation but also financial imbalances (Europe being the case study). The reaction in USDJPY was not as strong as yesterday but ensured the JPY remained capped today, with April 27 the next major BOJ event.
The market mover overnight was GBP with healthier unemployment data and a less-dovish BOE minutes providing the impetus for a move higher. The claimant count rate dipped to 4.9 percent in March following a downwardly-revised 4.9 percent the previous month while the ILO report for the 3 months to February also fell to 8.3 percent from 8.4 percent. The minutes of the last BOE meeting showed arch-dove Posen no longer insisting on more quantitative easing but there was discussion about the disappointing nature of the current pace of growth. Note that BOE’s Posen will be speaking later today, so we may get more insight into his shift in stance.
In contrast, EUR was pressured lower to the mid-1.30s versus the dollar as the Spanish stock market came under pressure and ECB’s Weidmann spoke about the limitations of the ECB bank buying programme and saw no reason to discuss a third LTRO. As a result EURGBP fell to its lowest level since end-August 2010. There were no data releases out of the US so Wall St struggled to maintain yesterday’s positive momentum, with uninspiring earnings from tech bellwethers IBM and Intel giving justification for profit-taking.
Data Highlights
US MBA Mortgage Applications out at +6.9% vs. -2.4% prior
NZ Mar. ANZ Job Advertisements out at -1.0% m/m vs. revised +4.6% prior
NZ Q1 CPI out at +0.5% q/q, +1.6% y/y, both as expected vs. -0.3%/+1.8% prior resp.
JP Mar. Merchandise Trade Balance out at -¥82.6 bln vs. -¥223.2 bln expected and revised +¥29.4 bln prior
JP Mar. Trade Exports out at +5.9% y/y vs. 0.2% expected and -2.7% prior
JP Mar. Trade Imports out at +10.5% y/y vs. +7.0% expected and +9.2% prior
AU Q1 NAB Business Confidence out at -1 vs. +1 prior
Upcoming Economic Calendar Highlights
(All Times GMT)
US Initial Jobless Claims (1230)
US Bloomberg Consumer Comfort Index (1345
US Bloomberg Economic Expectations Index (1345)
EU Euro-zone Consumer Confidence (1400)
US Existing Home Sales (1400)
US Leading Indicators (1400)
UK BOE’s Posen to speak (1700)
Andrew Robinson,
SAXO BANK