Eurozone data releases this week

March 24, 2014 — Mitul Kotecha

There are several first tier Eurozone data releases on tap this week including March flash purchasing managers indices (PMIs), preliminary HICP inflation and the March IFO business confidence survey.

We look for a slight increase in the “flash” composite PMI, with the data restrained by concerns about China and the Ukraine. Inflation in March could move lower, while the German IFO survey is expected to flat. The data will not be particularly spectacular but ought not to detract from the fact that growth momentum in the Eurozone is picking up.

Lower inflation may provide more support to lower policy rates from the European Central Bank but some of the pressure on the ECB to ease policy rates may have eased given the decline in the EUR last week.

After last week’s sharp drop EUR/USD is likely to consolidate around 1.3800 over coming days.

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US dollar to consolidate gains

March 24, 2014 — Mitul Kotecha

Markets last week were spooked by comments from Fed Chairman Yellen and the upward drift in Fed Funds projections which appeared to indicate a rate hike would take place around the spring of 2015.

This week will give the chance for Fed officials to either downplay or reinforce Yellen’s comments. There are several Fed speakers on tap over coming days including Stein, Lockhart, Plosser, Bullard, Pianalto and Evans.

Despite Yellen’s comments US equity markets ended the week higher despite Russia’s annexation of Crimea. US bonds yields also firmed over the week while the USD rebounded.

Sentiment this week will depend in part on further Fed commentary as noted above, Chinese data and also whether tensions between the West and Russia intensify. Reports that Russia has built up a “very sizeable” force on its borders with Ukraine do not bode well in this respect.

US data this week will look less weather impacted and will err on the positive side. Consumer confidence is set to be unchanged in March, while February new home sales are set to decline but durable goods orders are set to rise. Q4 GDP is likely to be revised higher and personal income and spending will reveal healthy gains in February.

Overall, the USD is expected to consolidate its recent gains will some improvements on the data front will interest rate markets will remain under pressure.

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NZD outperforms

March 18, 2014 — Mitul Kotecha

NZD has been the best performing major currency so far this year outshining other currencies by a wide margin. We expect further NZD/USD appreciation, albeit at a much more gradual pace over the coming months.

The kiwi has been propelled higher by a host of positive economic indicators including jobs data which has revealed an improving trend against the background of strengthening consumer and business confidence.

Economic growth is on track to reach our forecast of 3% this year. Additionally supportive of the NZD is the fact that NZ’s major commodity exports especially dairy products have remained high. NZD will also be helped by a likely healthy reading for Q4 GDP expected to come in at 3.7% YoY on Thursday.

NZD/USD looks set to target the 2013 high of 0.8676 as the next key target, a level that will provide strong resistance.

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Why the JPY will weaken

March 18, 2014 — Mitul Kotecha

While I continue to forecast JPY weakness over the coming months the JPY is currently being buffeted by various forces. Elevated risk aversion has limited the downside for JPY as the currency has once again found a safe haven bid although it has weakened as risk appetite improved slightly overnight.

Going forward, I expect US Treasury yields to move sharply higher as the US economy gains momentum and loses the shackles of bad weather, pressurising USD/JPY higher. Additionally likely further easing by the BoJ in April / May will contribute to downward pressure on the JPY.

Separately Japan has shifted from possessing a relatively strong broad basic balance surplus (current account + direct investment + portfolio flows) to a deficit, a factor that will undermine the JPY over the coming months.

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Risk appetite firms

March 18, 2014 — Mitul Kotecha

Despite the decision by Crimea’s parliament to formally request accession to Russia markets risk assets performed well overnight, with US and European equity markets registering solid gains. Consequently US yields rose overnight while the USD made gains against safe haven currencies.

Market relief probably reflected the fact that the referendum itself passed without violence while the reaction by the West in terms of sanctions was not seen to have a particularly detrimental impact on sentiment.

China’s decision to widen its currency band also passed with little fanfare given that such a move was largely anticipated. There will be some positive pass through into the Asian session from the gains in asset markets overnight although a degree of caution continues to be warranted given the still precarious situation in the Ukraine and ongoing tensions between Russia and the West.

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