Risk Currencies Gain
Risk assets have advanced despite mixed US data. Housing starts in July fell to 746k from a downward-revised 754k the previous month, while the August Philly Fed index improved to -7.1 from -12.9 and jobless claims were up by 2k. USTs continued to struggle, with 10y yields holding above 1.8% in the positive risk environment as their Spanish counterparts fell below 6.5%. While September will serve up plenty of event risk in the Eurozone, EURUSD continued to edge higher on low volumes as investors covered some of their short positions. Positive data surprises continued in the UK with July retail sales up by 0.3% m/m against the -0.1% consensus. Our UK economists note that retail sales could be very volatile over the next couple of months because of the Olympics and weather conditions. EURGBP bounced back after a knee-jerk drop following the data release. In its annual report on Canada, Moody’s projected real GDP growth of 2.1% and 2.5% for 2012 and 2013, respectively. It noted that the housing market poses “manageable risk” to federal finances. CAD showed little reaction to the International Securities Transactions report in Canada, which revealed a CAD7.9 bn net disinvestment from Canadian securities by non-residents in June. This followed the record investment of CAD26.1 bn in May, leaving the total tally for Q2 at CAD28.4 bn – still much higher than the Q1 figure of CAD6.1 bn. As noted in our latest FX Comment (“Going With The Flow In Canada”), the quarterly trends in the securities transactions report underline the growing attraction of CAD as a diversification play in an environment where global risk appetite remains stable. Ahead today, the July CPI report in Canada is due. A print above expectations could harden Bank of Canada rate expectations, further supporting CAD.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank