USDJPY Drifts Lower
Generally softer than expected US data served as a reminder that not all the risks are confined to Europe: the May ADP private payrolls print came in at 133k; initial claims rose 10k to 383k; and the Chicago PMI fell to 52.7. To be sure, this does not affect our forecasts for Friday’s key US data, as we still forecast an acceleration in overall and private payrolls growth to +175k and +185k, respectively, alongside a drop in the jobless rate to 8.0% and a dip in the manufacturing ISM to 54.0 in May. Yet, these data prints have done little to assuage concerns that the Eurozone crisis and US ‘fiscal cliff’ are starting to weigh more heavily on US growth, a point underscored today by Cleveland Fed President Pianalto, who said “my current assessment is that the real economy continues to show considerable cyclical weakness”. Wire reports that the IMF has started discussing contingency plans for a rescue loan for Spain ahead of the formal review starting on June 4 provided a temporary lift for the euro in nervous month-end trading, but Spain’s Economy Minister confirmed that no bailout plans were being discussed. The Danish central bank cut rates again, warning it “has the instruments to handle potential negative interest rates”. USDJPY remains heavy, with recent comments from Japanese officials dampening expectations for stronger action from the BoJ or MoF. Overnight, the DPJ’s Okubo downplayed the merits of FX intervention, adding that the BoJ had essentially done enough via liquidity injections from a ‘volume’ perspective. In the end, the risks were best summed up by Paul Volcker, who reportedly encouraged “the introduction of capital controls, at least as a temporary measure”. The focus is now on the Irish referendum results, where a “yes” is well priced in..
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank