No Greek CDS Trigger Yet
Brent prices jumped sharply to $128/bbl late during the US session on reports of a pipeline incident, but gains were pared after this was denied. The price action shows investors remain very nervous about the oil market and potential supply disruptions arising from the Middle East. Otherwise, early Thursday afternoon ISDA announced that the terms of the Greek debt swap did so far not constitute a credit event so there will be no payout. However, the important point is that this decision has been made on the current terms and the decision can change if, for example, collective action clauses are added to the debt swap. We continue to believe that private sector participation will not be high enough to avoid CAC’s and therefore the ISDA announcement does not change a great deal in reality. The market’s failure to react to the news was therefore understandable and the broader impact of a CDS event will not be known probably for another week or so (until the CAC’s are introduced). More broadly, markets had a relatively quiet day after the volatile price action of yesterday. The widely flagged Bernanke testimony was the same script as yesterday so markets had therefore discounted his thoughts. On the data front, US prints were mixed. The February ISM numbers were below consensus at 52.4 (falling from Januarys numbers of 54.1). Our US economists note that interestingly enough the report did show a sharp rise in the export orders index: to 59.5 from 55.0 in Jan and 51.7, on average, in Q4. The recent improvement has occurred despite concerns about slowing US export demand from Europe. Jobless claims were inline with consensus at 351k, while core PCE numbers were slightly stronger than consensus at 1.9% y/y. Elsewhere, the forward-looking PMI components in Italy and France improved while Norway printed a headline reading of 56.9. The krone has continued to push higher and remains one of our favourite currencies, even under current valuations. EURUSD traded 1.3305-1.3363 and USDJPY 80.84-81.31.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank