Risk Appetite Improves, Still Fragile
Investor sentiment improved modestly overnight. US Treasury Geithner probably deserves much of the credit given his optimistic remarks late on Friday where he said a budget deal on the US fiscal cliff could be reached in ‘several weeks’. S&P500 futures nudged higher in Asia, along with both 2y and 10 UST yields. USDJPY advanced to a new 7-month high of 81.59, also helped along by weekend comments from Japan’s opposition leader Abe in which he seemed to advocate using the BoJ to directly finance government spending. In fact Fed Chairman Bernanke originally called for such measures in Japan as long ago as 2003 when he recommended “explicit, though temporary, cooperation between the monetary and the fiscal authorities” which would see the Bank of Japan “increasing still further its purchases of government debt, preferably in explicit conjunction with a program of tax cuts or other fiscal stimulus”. After an initial scurry higher, investors recognised the legal obstacles to this and USDJPY gave back all gains.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank