- EUR-crosses prone to sell the fact on Eurogroup; Spain budget also in focus
EUR-crosses could be vulnerable to a “sell the fact” response on today’s European Finance Ministers meeting (0800 GMT). Markets have been led to believe this will result in agreement on a plan to combine the unused 240bn lending capacity of the EFSF with the planned 500bn capacity of the ESM. Anything short of this or the lack of unanimity on the proposal could therefore now prove unsettling for EUR-crosses. Meanwhile, the much focus remains on Spain following the disappointment result for Spanish PM Rajoy’s conservative party in last weekend’s regional elections. The Spanish budget is released today and announced budget cuts will be tested against the government declared intent to hit a revised 5.3% budget deficit/GDP target in 2012 (a compromise agreed with the EC after Spain declared its deficit was likely to be 5.8% not the 4.4% originally agreed). Month/quarter-end flows remain a major talking point and will be a key driver for Friday’s markets.
- Norges Bank April NOK sales key for NOK this morning
09:00GMT will see the Norges Bank announce its planned daily sales of NOK on behalf of the State Pension (oil) fund for April. The NOK350mn of daily sales so far this year compares to zero during the same periods of 2009 and 2010. Another NOK350mn target for April would seem logical on this basis (sales tend to pick up only after May). If, therefore, Norges Bank reveal a number higher than 350mn this would be another indication of its willingness to try lean against NOK strength (after the generally unexpected March rate cut). If so, we should expect some knee-jerk sell-off in NOK as a result -including a fresh leg lower in NOKSEK. 350mn should be FX market neutral, anything less than this NOK positive.
- JPY recovers; Politics in focus ahead of April 10 BoJ meet
JPY strength in recent days has been variously attributed to end of fiscal year flows, lower Treasury yields, profit taking by winning longs and a whiff of safe-have haven demand amid weaker equity markets. A slew of mostly positive JPY data this morning (a softer IP print was the exception) was countered by demand at the fiscal year-end fix and the pair has held above stops at 81.80. Political developments here will be worth watching: if progress is not made on the consumption tax legislation then it is hard to see the BoJ providing further support at the April 10 meeting.
- US Personal Income and PCE of particular interest
Though US bond yields are lower on the week (2s by about 3bps and 10s by 12bps) the moves are still less than might be expected if markets fully believe the FOMC’s commitment to hold rates down at least until late 2014. The data-dependency of Fed thinking remains key for FX and US data will have to continue to maintain strength from hereon to maintain support for the USD. We have ISM and non- farm payroll prints next week, today’s data could spur some interest. February Personal Income and Spending data come out will be after the unexpected weakness in January (only +0.2%). A bounce back in PCE is expected (+0.6%) with income seen at +0.4% ; BNP is also +0.6% on PCE but sees Income softer at +0.3% partly due to reduced transfer benefit payments. Real PCE has been flat for three months, and if we do not see a meaningful real increase in March, this will be a warning sign that not only might recent employment market strength be unsustainable, but also that demand growth itself may be faltering. For the USD, weak number than enhance expectations for additional Fed action and confidence in the late 2014 low rates commitment should hurt the USD, unless the data is so weak as to engender a broader risk-off move. Chicago PMI is also due (small fall expected) and final Michigan CSI. US data contributed little to the fray: slightly higher initial unemployment claims have not influenced our forecast for next Friday’s March non-farm payrolls at +200k (market consensus currently +210k).
BNP Paribas