Forex Week in Review June 5-10
It’s get out of Dodge time. The EUR continues to falter as sovereign-debt worries remain at the
forefront. The ECB seems to be losing its grip on its own independence and is in danger
ofbecoming more of a political pawn in Europe, talking its own book. This week’s ECB
rate announcement was a zero-sum game, the bulls and bears got what they wanted,
a hint of a rate hike and Trichet mentioning a stronger dollar policy more than once. However,
there seems to be some ambiguity in his comments about when and how often they will need
to raise rates this year, remaining a cloud over the currency.
Risk aversion trading strategies continue to dominate as fear of global growth stagnation has
investors wanting to pare some of their risk winning trades. With European leaders remaining
at odds on how to provide long term support for Greece and a slow down in Chinese risk exports
this week is also weighing heavily on risk appetite. Below are some of the key highlights of the week:
Portugal’s opposition center right PSD party posted a strong result last weekend and appear to
form a coalition with the center right CDS-PP party with a strong majority in parliament. This
bodes well for a stable government capable of pushing through key reforms and help honor the
terms of the €78bn EU/IMF bailout.In Spain, Moody’s commented on plans by the government
of the Catalan region to exceedbudget targets, noting this is credit negative for Spain.
German April factory orders surprised to the upside, rising +2.8% vs. +2.0%. The prior month’s
reported -4.0% was revised up to -2.7%. Data suggest Germany has entered the global slow
patch period with strong momentum.Swiss CPI rose +0.4%, y/y, in May from +0.3%, higher
than the consensus for a flat reading. This was still below the SNB’s own projection of a
+0.5%, y/y, rise for second quarter. Subdued inflation and an overvalued franc should deter
the SNB from sounding hawkish next weekIn the UK, both BRC retail sales and Halifax house
prices surprised to the downside. Halifax house prices fell -4.2% in May, while BRC sales
contracted +2.1%, y/y.IEA released a new ‘special’ report arguing that global consumption
of natural gas will rise 50% over the next 25-years. China’s demand will rise from about the
level of Germany to match that of the entire EU by 2035.German industrial production surprised
on the downside, falling -0.6% in April and pushed the annual growth of industrial production
lower to a still-strong +9.6%, y/y rate.Norwegian manufacturing production was also weaker,
down -1.1% in April. The soft patch was partly attributed to the long period of cold weather.
Swiss unemployment rate fell to +3.0% in May. The labor market remains very tight, with the
unemployment rate below the levels which the SNB started hiking in the last two cycles.
French and Swedish industrial production both fell, easing -0.3% and -0.7% in April respectively.
The pattern continued in the UK, with industrial production falling sharply (-1.7%) due to a large
extent of the effect of the extra bank holiday due to the royal wedding. Manufacturing production
fell -1.5%.Norway CPI rose +1.6%, y/y in May, price pressures eased slightly on a month-on-month
basis thanks to declines in transportation prices. Core-inflation moderated to +1%, y/y, from +1.3%.
As expected both the BoE and ECB kept overnight rates on hold. Trichet did manage to use the
‘strong vigilance’ language, a green light for hike in July. No comment further out the curve.
S&P’s said that France could lose its triple-A rating and without reform a downgrade was likely
by 2020.German Feri EuroRating downgraded the US to double-A from triple-A.
Fed Chairman Bernanke argued the US economy should begin to recover in the coming months.
He emphasized that the negative effects of supply chain disruptions from the Japanese
earthquake and the rise in gas prices will fade. His tone suggests that he is disappointed
with the pace of US recovery and is probably far from any form of exit from easy monetary policy.
Canadian building permits plunged (-21.1%), wiping out nearly all of this years gains and has
analysts questioning the strength of the Canadian construction industry. The trend for building
permits and housing starts remains in negative territory and certainly does not support a rate
hike by Governor Carney next month.In the US the number of individuals applying for weekly
benefits remained virtually the same (+427k).Canada recorded an unexpected trade deficit in
April (-$0.9b), on a drop in foreign sales of transportation equipment (-1.9%).
Canada created +22.3k new jobs last month and managed to reduce the unemployment
rate to +7.4%.
Inflation index down-under show that Aussie inflation fell to +3.3%, y/y, in May from
dovish monetary policy statement. Policy makers added the caveat that they would
‘assess carefully’ the outlook for inflation at future meetings. They softened their tone
PMIs have made them reluctant to commit either way.Australian home loans increased
Chinese export growth grew +19.4%, y/y, but was slightly weaker than the +20.4%
expected. Imports rose +28.4%, y/y versus an expected +22%. The 12-month rolling
trade surplus has narrowed to +$173b in May from +$179b in April. Analysts note that
Australia employment was a subdued +7.8k in May which followed a downwardly revised
Reports reduced the chance of a July RBA rate hike.RBNZ kept the policy rate unchanged
the PBoC to repatriate the CNY it raises in HK. If so, it would help encourage more mainlandsAdd a commentAdd a comment