• Dollar lower as risk seeking comes back Markets are flip-flopping based on risk-on, risk-off. The last 24 hours were risk-on and the dollar was lower against almost everything – all the G10 currencies and all 15 EM currencies that we track. As befits a risk-on environment, AUD was the biggest gainer and JPY gained the least. It was hard to see why, though; in fact, it seems to me that the tension in the Ukraine is increasing, particularly after the EU agreed on possible sanctions to take against Russia and the head of the US Joint Chief of Staffs, the top military official in the US, said that in the case of an escalation of unrest in Crimea, the U.S. Army is ready to back up Ukraine and its allies in Europe with military action. It seems to me that sentiment flipped to risk-on from risk-off after copper managed to bounce just under $3.00 a pound and staged a modest recovery, but I was unable to find out why that bounce happened, except perhaps for the technical reasons. EUR got some support from a comment by German Finance Minister Wolfgang Schäuble, who said that interest rates in the euro zone are too low from a German perspective. The statement reiterates Germany’s opposition to any new stimulus or rate cut from the ECB and reinforces the political difficulties that the ECB might have in cutting rates further. Nonetheless, yesterday’s movements overall remain a mystery to me and I would prefer not to invest based on mysteries. The reality is that the Ukraine situation is getting worse and the dynamics that have started in China have yet to play out, so I would expect more days like Tuesday – risk aversion that pushes USD up -- than like Wednesday in the near future. • Overnight the Reserve Bank of New Zealand (RBNZ) met and hiked the official cash rate (OCR) by 25 bps, as was universally expected. The RBNZ said it expects the OCR to rise by “about 2 percentage points” over the next two years, depending on economic conditions, although their forecast for the 90-day bill rate implies that rates continue to rise further well into 2016. The projected tightening is faster and longer than had been expected. I believe this course will distinguish NZD out of all the G10 currencies, especially as EUR and some other currencies (Sweden, Switzerland) struggle with deflation and push out the eventual start of their rate hiking cycle. • As the European day began, China announced that retail sales slowed dramatically to 11.8% yoy for January and February combined from +13.1% for all of last year (forecast: +13.5% yoy) and the nation’s industrial production for the same month also slowed more than expected to 8.6% for the two months from 9.7% in 2013 (expected: 9.5%). (January and February are reported together to offset the distortions caused by the Lunar New Year.) The news corroborates the message from the surprisingly weak trade figures China released earlier in the month and is likely to depress market sentiment. • During the European day, French CPI is forecast to have accelerated to +1.0% yoy in February from +0.8%yoy. Italy’s final CPI for the same month is also coming out. Sweden’s unemployment rate for February is estimated to have declined to 8.4% from 8.6% in January. Moreover, the ECB publishes its monthly report. • In the US, retail sales are forecast to have risen 0.1% mom in February, after remaining unchanged in January, while the excluding autos and gasoline figure is expected to have been up 0.2% mom, a turnaround from -0.2% mom the previous month. Initial jobless claims for the week ended on Mar 8 are forecast at 330k vs 323k the previous week. That would bring the four-week moving average slightly down to 334k from 336.5k. • From Canada, the new housing price index for January is expected to have risen 0.1% mom, the same as in December. • We have five speakers on Thursday’s agenda. ECB President Draghi speaks on the occasion of the awarding ceremony of the Schumpeter Award, while ECB’s Cœuré speaks on “Achieving a fully integrated banking union – the three pillars of the European Central Bank”. In the US, the Senate Banking Committee will hold a hearing to consider the nominations of Stanley Fischer, Lael Brainard and Jerome Powell for terms on the Federal Reserves Board of Governors.
Posted on: Thu, 13 Mar 2014 08:37:02 +0000
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