US data this week

February 24, 2014 — Mitul Kotecha

Despite a softer tone to US equity markets at the end of last week market tensions appear to be easing, with news over the weekend of the ousting of Ukraine’s President helping in this respect. Although US equities ended the week slightly lower the overall tone to risk appetite was firm.

The G20 meeting proved to be a non event in terms of immediate market impact although the aim to lift GDP by more than $2 trillion over the next five years appears to be ambitious to say the least. However, at least focus has shifted from austerity to growth in terms of G20 thinking.

Last week’s release of the February Markit US PMI manufacturing survey which revealed a stronger than expected reading helped to allay some concerns afflicting markets over the pace of US growth giving markets reason for optimism. Indeed, in general markets have attributed recent weakness in US economic data to adverse weather conditions rather than a shift in growth trajectory.

Unfortunately this week’s US data releases are unlikely to be particularly helpful in shaking off growth worries. Although February consumer confidence is likely to be unchanged at a relatively high reading (tomorrow) declines in new homes sales (Wednesday) and durable goods orders (Thursday) in January will not bode well while a revision lower to US Q4 GDP (Friday) will highlight a slower pace of growth momentum at the end of last year than previously recorded.

The US data is likely to be bond friendly helping to cap gains in Treasury yields as well as restraining the USD. Nonetheless, the message from a plethora of Fed speakers on tap this week will likely be one of continued willingness to maintain the current pace of tapering, with recent and current weakness in economic data being shaken off as bad weather related.

Posted in US. Tags: , , , . Leave a Comment »

USD/JPY edging higher

February 18, 2014 — Mitul Kotecha

The release of a much weaker than expected print for Japan’s Q4 GDP placed today’s BoJ meeting in a different light. While there was very little expectation of any policy action by the BoJ today the Bank surprised by increasing its lending program.

While asset purchases were not increased it is unlikely to be long before the BoJ embarks further along this path too. Clearly as the GDP data shows the task to boost growth / end deflation is going to be tough especially given the upcoming consumption tax hike. In other words the potential for future action remains significant.

USD/JPY fell initially on the BoJ outcome but pushed higher after an initial disappointment. The recent widening in the US / Japan yield differential (10 year differential at 224 basis points) indicates that USD/JPY will be supported on the upside, with support around 101.38.

Posted in Bank of Japan. Tags: . Leave a Comment »

Remaining constructive on AUD

February 18, 2014 — Mitul Kotecha

In contrast to the consensus view I remain rather constructive on the AUD. As reflected in the RBA minutes today the central bank has shifted its stance somewhat, effectively closing the door on further policy easing while finding it difficult to talk the currency lower as inflation pushes higher.

Separately although Chinese growing is slowing this year assuming that growth does not fall too far and too quickly the AUD is unlikely to suffer much from this source.

A lot bad news for AUD has been largely priced in. Firstly, the drop in AUD/USD has been consistent with the deterioration in terms of trade.

Secondly Australia’s broad basic balance position is quite healthy as strong direct investment and portfolio inflows counter a current account deficit.

Thirdly, even when looking at China’s growth trajectory the AUD is at a level which discounts this. Near term resistance for AUD/USD is seen around 0.9087.

AUDTOT

Posted in Australia, FX. Tags: . Leave a Comment »

Positive tone to be sustained

February 18, 2014 — Mitul Kotecha

A quiet start to the week following the President’s Day holiday in the US saw mixed performances among European equity markets overnight. There was however, a continued improvement in risk appetite as indicated by a further decline in the VIX “fear gauge”.

The impulse provided for today’s sessions is limited although markets are likely to get off to a positive start. The USD managed to show some stability following recent pressures, albeit at a low level, while gold prices remained supported above the key 200 day moving average level.

The main event today is the Bank of Japan policy decision which will be watched closely following yesterday’s release of disappointing Q4 GDP data.

The German February ZEW survey is also on tap, with a relatively stable reading likely to be registered although attention appears to be more on the new Italian Prime Minister Matteo Renzie rather than on economic data.

Additionally UK inflation data for January is set to reveal that inflation has dropped below target highlighting that the BoE is going to be in no rush to hike policy rates over coming months

Posted in Bank of England, Bank of Japan, UK. Tags: , , . Leave a Comment »

What to watch this week

February 17, 2014 — Mitul Kotecha

Despite a slow start to the week there are plenty of events and data this week for markets to chew on for further direction including in the US the February Empire and Philly Fed manufacturing surveys, January housing starts and existing home sales, as well as CPI and PPI inflation and FOMC meeting minutes. Overall the data will look relatively unimpressive, with softer manufacturing confidence, weaker housing data and benign inflation readings likely.

In the Eurozone, the flash purchasing managers’ indices will capture most attention. A slight softening is expected but this will not alter the picture of gradual recovery in the Eurozone economy. Indeed, last week’s better than expected Eurozone GDP release revealing broad based growth of 0.3% in Q4 highlighted the positive recovery path, in turn maintaining positive sentiment for the EUR.

On the policy front the Bank of Japan decides on policy tomorrow but no change is expected despite a disappointing Q4 GDP release this morning, which revealed that growth came in at a paltry 0.3% QoQ compared to 0.7% expected. Nonetheless, the weaker GDP data highlights that the BoJ and government has a big job to do in the months ahead especially given the risks to growth from the upcoming consumption tax hike. USD/JPY may find some support if the data translates into expectations of more aggressive BoJ action.

Posted in eurozone, Japan, US. Tags: , , . Leave a Comment »
« Older posts
Newer posts »