Risk Assets Have Their Day
The dollar fell across the board as market expectations continue to build that Wednesday’s FOMC meeting may produce yet another round of balance sheet expansion. Our US economics team are sceptical however – they do not expect any further money creation but would not be surprised if the policy language were adjusted to indicate the Fed’s greater readiness to ease in future, especially given the increased risks to the outlook arising from the Eurozone crisis. A temporary extension of Operation Twist cannot be excluded however. As far as the sequencing is concerned, the policy statement is scheduled to be released first, followed by forecast revisions 90 minutes later, and rounded off by Fed Chair Bernanke’s press conference which begins 15 minutes after that. Meanwhile, news reports from Greece suggest progress has been made towards forming a three-way coalition between New Democracy, PASOK and Democratic Left. Looking ahead to the EU Summit on June 28-29, EU Council President Van Rompuy said that the EU would present proposals at the June summit for establishing an economic union by year-end. We note however that these are just proposals, and would have to get the green light from Germany in particular before they ever see the light of day. On the data front, German economic sentiment as measured by the ZEW survey, plunged to -16.9 in June, the lowest level in 14 years. In the US, overall housing starts came in weaker than expected in May, falling 4.8% m/m to 708K. Our US economists note that the details of the housing report were solid enough, with single family starts rising 3.2% m/m in May after an upward revised 4.0% (from 2.2%) gain in April, and expect that housing activity will increase in the coming months. Housing permits rose more than expected by 7.9% m/m to 780k.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank