BoJ Board Changes Loom
The absence of fresh economic data releases overnight did nothing to address lingering investor uncertainty over the sustainability of the global recovery. This made for generally range-bound FX trading conditions, although optimism was momentarily boosted when USDCNY fixed at a new all-time-low of 6.2891. US President Obama and China’s President Hu are due to meet in Seoul on Monday. The Japanese government nominated Ryutaro Kono as a new member of the BoJ Policy Board to replace one of two policymakers whose terms end in early April. Our economists note that Kono has hawkish tendencies and his endorsement by parliament – which is a prerequisite for his appointment to the board – is therefore not a foregone conclusion. Former RBA board member Lew criticized the current RBA board for mishandling the mining boom. He urged the bank to cut the policy rate by up to 75bp to ease the pressure on regional economies which do not benefit directly from the boom but still have to live with the consequences of a strong AUD. US economic data continues to outshine that of other major economies. Despite the weaker Chinese, French, German and New Zealand data on Thursday, US initial claims are still trending lower, with the 5k drop to 348k providing further evidence of improving labour market conditions. Though USDJPY has stalled in the past 48 hours, any further downside should be limited by the prospect of a sustainable US recovery that will allow the Fed to keep the QE option off the table – as the BoJ continues to ease. If there were any doubts about the latter, BoJ Governor Shirakawa again set the record straight overnight declaring that the BoJ would continue to pursue its easing steps with the aim of overcoming deflation. Fed President Bullard (non-voter) offered a reminder that Fed policy rate forecasts can change and will need to follow the data. He said that a sterilized approach to asset purchases would not make any sense. Chicago Fed President Evans (a non-voter and also a long term dove) said that low rates would be appropriate until inflation reaches 3% or until unemployment falls to 7%. These are the first numerical ‘triggers’ informally proposed by an FOMC official – instead calendar dates such as mid-2012, or end-2013 have been used in FOMC statements. Today, Canadian CPI, US new home sales, and Fed Chairman Bernanke’s speech are due.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank