25 January 2012 at 8:41 GMT
Risk indicators are at the bulls’ back here, even if the ever-present Euro Zone sovereign debt crisis hydra stands ready to produce new ugly heads at any time. JPY continues to suffer – will FOMC provide a pivot?
We’ve seen a remarkable turn in sentiment over the last couple of weeks as virtually all of our risk indicators are showing strong risk willingness. The fish are all swimming in the same direction, a change from early last week, when there were still signs of concern and divergence in a number of indicators, (emerging market spreads, etc.). The Apple earnings news late yesterday offered an additional boost to sentiment and it’s becoming increasingly easy for the bulls to state their case. Still, the outstanding Euro Zone political/sovereign debt issues are ready to rain on the parade at any time (remember the risk of a second bailout for Portugal, Spain’s finances still in ruins and government unable to cover the budget shortfall, bank dependency on the ECB, uncertainty over Greek PSI deal, etc.) and tonight’s FOMC meeting is a significant event risk, even if expectations surrounding it are minimal.
Australia inflation data
Australia’s Q4 inflation data came in a bit higher than expected, with the core “trimmed mean” reading (the RBA’s favourite) coming in at 0.6% QoQ vs. 0.5% expected, although the headline data was actually lower than expected. Still, Aussie 2-yr swap rates leapt about 15 bps on the news as the market further unwinds expectations for RBA easing going forward and AUD jumped to attention in the crosses.
Obama state of the union
Obama’s state of the union saw the president positioning himself as a “tax the rich” candidate as he demanded that “millionaires” pay at least 30% of their income as tax. The timing could not have been better as possible Republican candidate Romney released his tax records yesterday, showing that he only paid an effective tax rate of less than 14% on his income of tens of millions of dollars. Obama’s message will be an easy one to sell in a country increasingly divided into haves and have nots (many of the latter dependent on government handouts for their daily bread) as the Republican primary race has descended into a mud-wrestling match between two very weak candidates, the one handicapped by his personal and political past and image (Gingrich), and the other by his past in private equity, religious issues, and seeming lack of conviction (Romney).
JPY remains on the defensive
The JPY has been punished of late by the recent rise in interest rates at the long end of the curve around the world and on a surge in global growth hopes as the data in the US and Europe has proved largely resilient. Overnight, another dent was administered to the JPY’s case as the Trade Balance numbers for December remind us that Japan seems to be slipping more firmly into “twin deficit” status. The adjusted trade balance saw the largest monthly deficit for 2011 and only one month back in January 2009 saw a larger shortfall. The key focus points lie just ahead for USDJPY in the 78.30 area (range high and the 200-day moving average) and EURJPY’s high so far is nudging up close to the 55-day moving average at 101.70. AUDJPY blasted through the 200-day moving average overnight, a technical level it has not successfully closed above since last July. It would seem today’s FOMC meeting presents a key event risk for global bond markets that will either serve to support the latest weakening move or serve as a pivot point for consolidation.
Chart: AUDJPY
AUDJPY as a big move mover overnight as the increasingly negative terms of trade and improvement in global growth sentiment are punishing the JPY and rewarding the normally pro-cyclical Aussie, which is also getting a boost from the latest rally in key commodities and from the inflation data overnight. The pair took out the 200-day moving average overnight as the pair looks like the highest beta play on whether risk appetite continues to blossom.
Looking ahead
Up shortly we have the German IFO survey data. It wouldn’t be surprising to see another marginal improvement there after the flash PMI surveys for this month have shown some improvement and asset markets have surged so far this year. The reversal yesterday in EURUSD was reversed, so the rally remains nominally on, with 1.3140 as a possible resistance area and then 1.3200/50 as the final resistance area that looks “comfortable” for the structural bears.
Tonight we have the US FOMC meeting – more on that later. Meanwhile, stay on your toes on news related to Greece and Portugal and Italy, watch for the BoE Minutes and UK GDP for further direction on sterling (see yesterday’s preview
from Nick Beecroft here). EURGBP resistance comes in at 0.8433 (55-day MA) if the pair is able to uncork a fresh rally through 0.8360/75 resistance. After tonight’s FOMC meeting/press conference, we also have the RBNZ on tap with a rate decision (no change to rate expected).
Economic Data Highlights
- Australia Nov. Westpac Leading Index out at -0.2% MoM vs. +0.1% in Oct.
- Japan Dec. Adjusted Merchandise Trade Balance out at -¥567.6B vs. -¥384.9B expected and vs. -¥534.2B in Nov.
- Australia Q4 Consumer Prices out at 0.0% QoQ and +3.1% YoY vs. +0.2%/+3.3% expected, respectively and vs. +3.5% YoY in Q3
- Australia Q4 RBA Trimmed Mean Prices out at +0.6% QoQ and +2.6% YoY vs. +0.5%/+2.4% expected, respectively, and vs. +2.4% YoY in Q3
- New Zealand Dec. Credit Card Spending rose +0.9% MoM vs. -4.2% MoM in Nov.
- New Zealand Dec. Business NZ PMI out at 51.9 vs. 46.0 in Nov.
Upcoming Economic Calendar Highlights (all times GMT)
- Germany Jan. IFO Survey (0900)
- UK Bank of England Minutes (0930)
- UK Q4 GDP (0930)
- UK Dec. BBA Loans for House Purchase (0930)
- UK Nov. Index of Services (0930)
- UK Jan. CBI Trends Total Orders (1100)
- Canada Nov. Teranet/National Bank Home Price Index (1400)
- US Nov. House Price Index (1500)
- US Dec. Pending Home Sales (1500)
- US Weekly DoE Crude Oil and Product Inventories (1530)
- US FOMC Rate Decision (1730)
- US Fed’s Bernanke to Hold Press Conference (1915)
- New Zealand RBNZ Official Cash Rate (2000)