No Payrolls Follow-Through
There was little follow-through in Asia after the US payrolls and unemployment reports on Friday. Flows were light with Tokyo on holiday and the US Treasury market also closed for Columbus Day in the US. We continue to believe that most of the QE3-induced dollar weakness is now behind us, and supportive evidence in favour of this view continues to accumulate. First, US economic data reports are still outperforming their Eurozone equivalents. Indeed our US economics team raised their US Q3 real GDP growth forecast on Friday to 2.0% from 1.5% (reflecting improvements in ISM data, inventories and exports). In addition, the euro’s short squeeze appears to have run its course, with IMM positioning data showing no further trimming of euro shorts last week. Finally, all major central banks – and not just the Fed − are in an easing mode. Although we expect EURUSD to drift lower into year-end, we would be reluctant to sell the euro until Spain requests a formal bailout and the ECB actually begins to buy bonds through its OMT program. Both events seem likely to occur and will probably give the euro one final push higher before the downtrend resumes. Meanwhile a series of high-profile political meetings are due to take place inside the Eurozone shortly. Today, finance ministers of the 17 member states in the Eurozone meet in Luxembourg. On Tuesday, German Chancellor Merkel is due to travel personally to Athens for talks with Greek Prime Minister Samaras. Then on Wednesday Spanish Prime Minister Rajoy is due to meet French President Hollande.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank