A quiet start to the week, with Asia confined to tight ranges across all currency pairs with no data releases to spur activity. China equity markets were in the red after softer housing data at the weekend, but the rest remained in the black.
In weekend news we were once again reminded that periphery Europe’s woes have not been completely erased by Greece’s debt swap deal. UK Telegraph’s Ambrose Evans-Pritchard focuses on comments from Mohamed El-Erian – chief of the giant Norwegian-run bond fund PIMCO – that Portugal could become a second Greece case, as the original bailout package of €78 bln falls short of what is needed, bringing the EU political storm of EU rescue costs to the fore again. It is estimated that, if the Greek haircut formula is extended to Portugal then private creditors can expect to lose everything, writes Evans-Pritchard.
China’s Vice Premier Li Keqiang (seen as heir apparent to the China leadership) noted that the government would make policies more targeted, flexible and forward-looking to maintain relatively fast, more-balanced economic growth and keep prices basically stable. In comments on China, IMF’s Lagarde agreed that China needs to continue shifting the drivers of growth toward domestic consumption and away from investment and exports, and that the Yuan could become a global reserve currency in the future, with reforms.
Weekend data indicated that house prices in China continue to slide, with latest data from the National Bureau of Statistics showing declines in over half of the cities monitored in February. This marks the fifth month of decline, after authorities introduced measures to combat speculative bubbles. Premier Wen’s comments at the National Party Congress last week that “home prices are still far above the reasonable level” and the overall tightening stance on the housing market are likely to ensure another few months of softer data. IMF’s Zhu Min latched on to the softer house prices to suggest that China would head for a soft landing in its economy rather than a hard one.
Consolidation in US yields and data releases that failed to match the buoyancy seen of late meant the US dollar was slightly on the defensive during the second half of the overnight session on Friday, with the US index slipping almost 0.6 percent by the close. Rumours that the Euro-zone is considering boosting the bailout capacity of the ESM to €700 bln gave additional impetus to the EURUSD’s rally.
On the data front, US CPI was more-or-less in line with forecasts, though core CPI eased down 1 percentage point on a month-on-month basis. Industrial production and capacity utilization were slightly below consensus (flat and 78.7 percent respectively) but Michigan Confidence slid to 74.3 from 75.3, below the expected 76.0 with higher gasoline prices affecting sentiment. This was the first decline seen in the index since last August. Wall St was mixed with the S&P500 closing out its best week in 3 months with gains of 0.1 percent. Other indices declined however, with the DJIA losing 0.15 percent and the Nasdaq 0.04 percent.
Data Highlights
CA Jan. Manufacturing Sales out at -0.9% m/m vs. 0.2% expected and 0.6% prior
US Feb. CPI out at +0.4% m/m, +2.9% y/y, both as expected vs. 0.2%/2.9% prior resp.
US Feb. Core CPI out at +0.1% m/m, +2.2% y/y vs. 0.2%/2.2% expected and 0.2%/2.3% prior resp.
US Feb. Industrial Production out at flat m/m vs. 0.4% expected and revised 0.4% prior
US Feb. Capacity Utilization out at 78.7% vs. 76.0% expected and revised 78.8% prior
US Mar. Michigan Confidence out at 74.3 vs. 76.0 expected and 75.3 prior
NZ Q1 Westpac Consumer Confidence out at 102.4 vs. 101.3 prior
NZ Feb. Performance of Services Index out at 55.5 vs. revised 53.8 prior
Upcoming Economic Calendar Highlights
(All Times GMT)
AU RBA’s Stevens to speak (0500)
EU Euro-zone Current Account Balance (0900)
EU Construction Output (1000)
CA Wholesale Sales (1230)
US Fed’s Dudley to speak (1235)
US Fed’s Killian to testify (1330
US NAHB Housing Market Index (1400)
EU ECB’s Nowotny to speak (1700)
Andrew Robinson,
SAXO BANK