Payrolls Conveys Stability
The December payrolls report was solid, but in the wake of the release of the same month’s FOMC minutes the day before, perhaps many elements in markets were also relived that the number was not too strong as to make early normalisation a serious prospect. For now, our economists continue to expect that the Fed will scale back its asset purchases towards the end of the year, and in the short-term markets should not hold the view that the FOMC has taken a hawkish turn. Overall, macro and monetary policy conditions remain conducive for a general risk-on environment, though the market will probably be more selective in identifying risk currencies. Positioning, policy expectations and absolute returns will all matter, which may explain to some extent why the euro has underperformed risk so far this year. Ahead this week the ECB and BoE open the 2013 monetary policy season and the market is not expecting any material change in their outlooks. Greater scrutiny will likely be on the ECB, as President Draghi can expect further questioning on the prospect of negative rates and OMT activation – both policies we expect to be EURnegative on a structural basis. Overnight EURUSD traded 1.3035-1.3091 and USDJPY 87.96-88.38.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank