Beyond Payrolls
Just over 40% of votes have so far been counted in Greece’s parliamentary elections which took place on Sunday. Preliminary official results confirm that fringe parliamentary parties have made substantial electoral gains. It is still unclear if the two mainstream political parties – PASOK and New Democracy – will have enough seats in the new parliament to form a stable two-party coalition. Official projections at the time of writing suggest they can muster only 151 seats out of a total of 300, which would leave any future two-party coalition vulnerable to a single defection. Though the 115k April US payrolls print came in well below the 160k consensus, the upward revision to the March figure (154k vs 120k) provided enough of an offset to dull the initial market reaction. Private payrolls came in at 130k after an upwardly-revised 166k result for March. Nonetheless, this latest read on the US employment situation provides more ammunition for the doves than the hawks. The dip in the unemployment rate to 8.1% should not obscure the drop in the labour force participation rate to 63.6%, the lowest since December 1981. Moreover, the flat readings for average hourly earnings and the workweek will only magnify fears that growth momentum will slow ahead, keeping the QE door open and the downward pressure on the dollar. Near-term USDJPY risks certainly appear skewed towards the downside, with Japanese institutions unlikely to be in any hurry to buy post-Golden Week amid the high degree of uncertainty in the global outlook – particularly in the absence of a stronger FX intervention threat. Yen bulls should have more room to run on such crosses as AUDJPY, with the Australian dollar facing a number of headwinds in the coming week, namely the prospect of (i) a budget that will tighten fiscal policy further to reach a 2012-13 surplus, thus inviting further RBA rate cuts and (ii) a moderation in the Chinese lending data, with consensus pegging RMB780 bn for April after the RMB1.0 trn result in March. Note that our Australia economics team expects the RBA to serve up another 50bp of rate cuts to 3.25% by August, and does not categorically rule out the risk of a sub-3% profile in an environment where (i) banks have independently lifted lending rates; (ii) the RBA no longer predicts above-trend growth for end-2013; and (iii) fiscal drag will be significant.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank