Quarter-End Flows Underway
Price action in Asia was dominated by month-end and quarter-end flows into the Tokyo fix, on this the last day of Japan’s fiscal year. The euro, and Australian and New Zealand dollars received a boost, but USDJPY remains heavy as UST yields continue to drift lower. We are wary of joining the rally in commodity currencies given the likelihood of a weak official Chinese March PMI over the weekend, and we would expect risk appetite to begin next week on a softer tone. The latest US economic data was uninspiring with jobless claims falling to 359k from (a revised up) 364k. Q4 GDP growth was unchanged at a 3.0% annual rate though. Fed Chairman Bernanke completed his four-part economics lecture series noting the pace of recovery has been “extremely sluggish” and that the unemployment rate remains “painfully high”. He did acknowledge though that the economy’s need for Fed support will diminish “at some point”. Fed President Plosser said he has not participated in any discussion about so-called sterilized QE – an idea first floated in a Wall Street journal article a month ago. The remarks suggest any discussion about this as a possible policy tool is still at a very preliminary stage. Asian equities were mixed after the S&P500 recovered most of its losses into the New York close. Ahead today, we have the Eurozone finance ministers meeting, plus US personal income/spending and consumer sentiment data. Tonight, the IMF may release a quarterly report on the currency composition of FX reserves. Given the BoE’s revelations of overseas buying interest in Gilts in Q4, the sterling composition of reserves will be of particular interest this time around. The SNB has already published its reserve composition for Q4, showing an uptick in sterling holdings to 5% (prev. 4%) of total reserve assets.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank