- BoJ fails to push USDJPY higher
This morning the BoJ announced an expansion of their asset purchasing by JPY 10tr, while extending the maturity of the JGB’s that it will purchases to 3 years from 2 years, but reduced the purchases of fixed-rate market operations by JPY 5yr. The reaction by USDJPY, to move up to 81.40 but failing to hold onto these gains, reflects that the market has is looking beyond the 10tr headline expansion. The extension of maturity was less than some expectations that the maturity targeted could be extended up to 5yrs. Meanwhile, comments in the statement also suggest that the BoJ may not be easing further any time soon. The Board states that it expects that it “will not take too long” for CPI to reach the BoJ’s 1% goal. Furthermore, the board extended the deadline for asset buying by 6 months, allowing the BoJ until June 2013 to purchase extra assets. This suggests that scope for JPY weakness on prospects for further BoJ easing is likely to be limited, especially when taking into account that on the back of some of the largest Japanese lifers announcing recently that full hedge ratios will be maintains on foreign assets, which in our view limits the scope for JPY weakness. For this morning, focus shifts to the press conference at 0730 London time, where we expect BoJ Governor Shirakawa to stress the importance of the need for fiscal reform and perhaps hint that the Government must make progress before the BoJ may be willing to ease further.
- US Q1 GDP under the limelight
The advance estimate of US GDP will take centre stage today. Our economists forecast Q1 GDP of +2.2% q/q saar vs. 3% in Q4. The moderation in GDP is due to the expected slowdown in the pace of inventory accumulation; inventories added 1.81ppt to growth in Q4 2011. In Q1, consumption will likely be in line with Q4, while fixed business investment may weaken slightly. Surprisingly, the government sector should make a positive contribution to growth for the first time since Q3 2010. But this is only a temporary reprieve as government spending should decline through 2012. Consensus for Q1 GDP is 2.5%. While our forecast may be weaker than the market, the report overall will be consistent with an economy that is growing close to trend. If the numbers do in fact disappoint, then global growth concerns may re-emerge, triggering a risk-off sentiment, putting the USD on firmer footing and equities under pressure. Meanwhile, we expect a slight improvement in the final reading of the Michigan consumer sentiment for April.
- Success of Italian auction will be important for EURUSD
EURUSD is underpressure this morning following a downgrade of Spain to BBB+ by S&P. This morning’s European focus will be the Italian bond auctions scheduled for 10.00 today. A poor auction will likely accelerate a move lower in EURUSD, especially as the soft survey data recently has not been fully priced into the EUR in our view. Also in Europe, the April Swiss KoF Leading Indicator is expected to disappoint, but improve from the previous month. Disappointing data out of Switzerland would further confirm that the SNB will remain committed to the 1.20 floor. The NOK and the SEK may gain some support on an expected improvement in retail sales numbers.
- US Jobless claims rise; we now expect +125 gain for the April payroll report
Following the steady increase of the Initial Jobless claims’ four-week moving average since the beginning of April, our economists are now looking for the April payroll report to only post a 125k gain, much weaker than consensus of +175k. However, data in the upcoming week should shed more light on the payroll number especially the ISM non-manufacturing number whose employment component tends to be a good indicator for NFP. On a positive note, housing data continues to show signs of improvement with pending home sales in March significantly surprising to the upside while the February numbers were revised higher. Also, US corporate earnings have generally continued to beat street estimates. We expect that risk appetite can continue to support AUD and CAD in FX going into next week, especially given Bernanke’s clear pledge that the Fed “remain(s) prepared to do more”, but NFPs at the end of next week is a key risk for market sentiment.
BNP Paribas