– Greek parliament passes 2013 budget…EUR waits for more
The euro held above 1.2700 in Asia following a successful vote by Greece’s ruling coalition in parliament on Sunday to approve the 2013 budget law. Greece’s three-party coalition government approved the budget with a comfortable majority of parliament’s 300 seats. Focus will now shift to today’s meeting of eurozone finance ministers later. Finance ministers will meet in Brussels later today to discuss the new tranche of funding for Greece. German Finance Minister Schaeuble was quoted in a German newspaper on Sunday stating that the troika was unlikely to deliver its full report in time for Monday’s meeting. The eurozone likely will not release the new funding despite Greece’s tough 2013 budget as there is no agreement yet on Greece’s debt sustainability. EUR risk appears biased to the upside.
– Stronger Chinese trade surplus remains consistent with a GDP recovery in 2013
Chinese activity data over the past week supports the case for an economic rebound in Q4. Data over the weekend bolsters that view with The October trade balance expanding by more than expected to $32 billion from $27.7 billion in September. Exports rose by 11.6% yy while imports grew by 2.4% y/y. The overall picture continues to support our call for a recovery to 8% GDP growth in 2013. Nevertheless, we still expect authorities to maintain the accommodative policy stance to protect the green shoots by ensuring adequate market liquidity and enhancing transmission of monetary policy. Clearly, an improvement in China’s economic outlook should eventually prove supportive of the risk backdrop in Asia, with Asian currencies, AUD and NZD benefiting. Following the strong data, USDCNY fell to a new low of 6.23 – again consistent with stronger Asian currencies.
– US Fiscal cliff uncertainty lingers
President Barack Obama and House majority leader John Boehner both made comments on the upcoming fiscal cliff on Friday. The President reiterated a ‘balanced’ approach (i.e. combining spending cuts and higher revenues). Despite some recent hints that future negotiations may be less confrontational, market concerns over the negative impact of the fiscal cliff have shown few signs of abating so far. Jittery markets have been positive for JPY over the past week, and we maintain our USDJPY short trade, initially entered at 79.65 and targeting 77.00. Assuming that the full fiscal cliff scenario is avoided, Fed’s QE3 should still re-emerge as a key market driver. Our current favoured USDJPY indicator – the 2 year US-Japan yield spread – has also turned lower and is now signalling further downside. Finally, our measure of market positioning also shows JPY shorts reaching clearly overextended levels this week, reinforcing the view that further downside is likely for the Japanese currency.
– US data does not change our core USD-bearish view….CFTC data shifts to net USD long
US data ended the week on a firmer note. November Michigan consumer sentiment beat market expectations, rising to 84.9 – the highest level since July 2007. The details of the report suggested both the present situation and expectations gauges improving versus their October readings. Our economists expect a more subdued tone for US data this week, where we hold below-consensus forecasts for October retail sales on Wednesday (-0.3% m/m) and industrial output on Friday (flat m/m). More broadly, we do not believe the upcoming data can materially change the Fed’s views on the economy ahead of the December FOMC meeting. Given our expectation that the expiring Operation Twist will be rolled into outright Treasury purchases, we are comfortable holding a core USD-bearish view. Data released Friday reveals that CFTC currency speculators shifted to a net long USD exposure for the first time since early September. The value of the USD’s net long position totalled $1.3 billion from a net short of $710 million the previous week.
BNP Paribas