Japan Q2 GDP Due Today
Canada’s weak July employment report on Friday produced only a hiccup in the week-long CAD rally. The -30.4k net job change was stark in relation to the +6.0k consensus forecasts, but soothed considerably on seeing the breakdown: fulltime jobs actually increased by 21.3k, while 51.6k part-time jobs were shed. The unemployment rate ticked up to 7.3% (cons. 7.2%). The knee-jerk reaction that saw USDCAD higher on the headlines was reversed once the details were digested. CAD, SEK and NOK were the biggest winners last week – each gained more than 1.5% versus EUR – as investors diversified away from Eurozone assets. Norway’s oil fund, which oversees close to $600 bn in assets, said it had trimmed Eurozone exposure in Q2 to 14% of its fixed income portfolio, from 14.5% in Q1, while lifting exposure to US Treasuries to 20% of fixed income, from 18.8% before. The fund has also cut government bond exposure to France, the UK and Spain. While these are only modest adjustments, the sheer size of assets under management makes it a notable shift. Meanwhile, German Vice Chancellor Philipp Roesler expressed disappointment at Greece’s efforts to implement reforms and also underlined comments from Eurogoup chief Juncker that a Greek exit “isn’t our aim, but would be manageable”. Comments from Merkel’s CDU party that Germany has “reached the limit of its capacity” and may veto any additional aid if Greece does not fulfill its obligations, should put further downward pressure on EUR. San Francisco Fed President Williams, a voting member of FOMC this year, said Friday that he “now” supports another round of an “open-ended” QE, echoing comments of his Boston counterpart, Eric Rosengren. However, in the wake of firmer US data in recent weeks, we believe it is unlikely that the Fed undertakes a fully-fledged QE programme in September. Further easing could, however, come by making it easier for banks to access funds from the Fed’s discount window. Ahead today, Japan reports Q2 GDP today. Our economists expect strong +3.0% q/q growth on an annualized basis (consensus: +2.3%, prior: +4.7%), driven mostly by public and private investment underpinned by reconstruction demand. A result amply outside of expectations might allow USDJPY to escape from its recent range.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank