Take Cover
Continued uncertainty about the post-election political set-up in Greece, questions about whether the EFSF would even approve its EUR5.2 bn payment to Greece, and concerns about Spanish banks all conspired to keep risk on the back foot. EURUSD tested the downside as peripheral spreads widened, but managed to come off its lows as the EFSF confirmed that the Greek payment will be delivered – albeit with only EUR4.2 bn coming this week and the rest to be disbursed depending on Greek requirements on the premise that it is not needed before June. Yet, sentiment remains fragile and sensitive to the headlines out of Europe, with fears of another election (as SYRIZA leader Tsipras failed to forge a new coalition), policy paralysis, a funding crunch, and a Greek exit from the euro still lurking in the market. Reports that the IMF is aiming to limit euro lending offered another reason to worry, highlighting the reluctance of some members to provide funds for the more troubled Eurozone countries. USDJPY remains heavy in the absence of a stronger intervention threat so far, but yen bulls should have more room to run on the crosses to the extent the ‘risk off’ sentiment persists. Given the shift towards a tighter fiscal-looser monetary policy regime, we think the Australian dollar will be vulnerable to any soft data prints that magnify rate cut expectations. The focus is now on the Australian employment and Chinese trade data for April. UBS and the consensus expect a 5k drop in Australian employment and an uptick in the unemployment rate to 5.3%, nothing that would challenge the RBA’s dovish turn. Moreover, the below-consensus 7.5% y/y print that UBS expects for Chinese export growth is unlikely to alleviate slower growth concerns. Also on the calendar will be the policy decisions from the BoE and Norges Bank, both of which should produce ‘no change’ verdicts in our view.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank