Storm Warning
With Hurricane Sandy bearing down on the US Eastern seaboard, US equity markets are due to close today. The US Treasury market seems likely to shut from 12 noon EST too after the Securities Industry and Financial Markets Association issued a recommendation to that effect. Currency markets were quiet and range-bound overnight. Even USDJPY failed to show signs of life ahead of Tuesday’s Bank of Japan policy decision. Our Japan economists expect the BoJ to increase the size of its Asset Purchase Programme by JPY10 trn, though this is now a consensus view. IMM positioning data released by the CFTC on Friday shows that yen shorts jumped very significantly last week – and we would have to look back 18 months to see shorts build so rapidly over a single week. Clearly, with the market already prepositioned for considerable easing, bolder BoJ action will be needed to drive USDJPY sustainably higher in the nearterm. Meanwhile there is little immediate sign of a breakthrough in negotiations between Greece and the troika. As at the time of writing, one of Greece’s three coalition parties maintains its resistance to labour reforms which the troika insists on – and negotiations appear to be bogged down on this key point. We still expect Greece to receive the next installment of external aid, but it is quite clear that the road to eventual disbursement is likely to be bumpy, and FX markets are not currently priced for any nasty surprises. Today, UK lending data will be pored over for signs that the Funding for Lending Scheme is finally helping to boost lending to the real economy.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank