$ Dollar Vulnerable if US Economic Data Boosts Risk Appetite Recovery

29 May 2012 07:16 GMT Talking Points
Commodity Dollars Outperform in Asia on China Stimulus Hopes Euro Risks Skewed to the Upside Before German Inflation Figures US Consumer Confidence, Dallas Fed Prints May Weigh on USD The major currencies were little changed against the US Dollar (ticker: USDollar) overnight as thin post-holiday liquidity conditions and the absence of market-moving cues from economic data or risk sentiment trends left FX traders without a significant catalyst to spark volatility. The Australian, Canadian and New Zealand Dollars narrowly outperformed as Asian stocks advanced, pulling the sentiment-linked currencies along for the ride. The MSCI Asia Pacific regional benchmark equity index added 0.9 percent after China’s finance ministry said it will allocate up to 2 billion Yuan per year to subsidize purchases of fuel-efficient cars, raising hopes the spending injection will boost growth.
Looking ahead to European trading hours, the preliminary set of May’s German CPI figures is in focus. Expectations call for the headline inflation rate to hold at 2.1 percent. A print in line with expectations will mean little for ECB policy expectations and so seems unlikely to produce fireworks from price action. Indeed, given the scope of aggressive Euro selling over recent weeks, the risks appear skewed to the upside in the event that an upside surprise offers a compelling excuse to drive profit-taking. France and Italy are set to hold bond auctions, but short tenor of the debt on offer (see below) means the results may pass with little fanfare.
Later in the day, the focus will turn to the US economic calendar. May’s Consumer Confidence reading and the Dallas Fed Manufacturing Activity gauge are on tap, with expectations pointing to improvements on both fronts. Broadly speaking, data collected by Citigroup suggests US economic data has stabilized relative to expectations in May after three months of deterioration. This lays the foundation for stronger outcomes to buoy hopes that a firming (albeit unevenly so) recovery in North America can help offset weakness in Europe and Asia.
In the context of heavy selling across the risky asset space over recent weeks, this may help drive a recovery in sentiment, weighing on the safe-haven greenback against most of its top counterparts. USDJPY may prove to be an exception in this regard, where stronger US data is likely to translate into Dollar strength on the back of rising Treasury bond yields and fading QE3 expectations. S&P 500 stock index futures are pointing firmly higher in late Asian hours, reinforcing the likelihood of a risk-on scenario in the hours ahead.
Asia Session: What Happened
Household Spending (YoY) (APR)
Large Retailers' Sales (YoY) (APR)
HIA New Home Sales (MoM) (APR)
Small Business Confidence (MAY)
Euro Session: What to Expect
German Import Price Index (MoM) (APR)
German Import Price Index (YoY) (APR)
UBS Consumption Indicator (APR)
Italy to Sell €8.5M in 183-day Bills
German CPI - EU Harmonised (MoM) (MAY P)
German CPI - EU Harmonised (YoY) (MAY P)
France to Sell €8B in 91-364 day Bills
Critical Levels

$ Dollar can fold as Profit readers risk appetite recovery

Discussion points
US dollar gains China slowdown fears weigh on Stocks in Asia active risk can Correct higher as markets absorb negative News - flow University of Manitoba Consumer confidence gauge can Tip scales for US Dollar mixed data (ticker: USDollar) edged more against high counterparts of the page of the day to the next as Asian stocks declined, stimulate demand for the refuge go - to currency. Not surprisingly, the Australia and New Zealand $ sensitive stocks the the bond. The MSCI Asia Pacific regional reference index have slipped 0.6% in reports that Chinese banks can miss their target of loans for the first time in seven years in 2012, strengthening fears of slowdown in economic activity in the world's second economy.
In the future, the risk-off atmosphere prevailed in the financial markets over the past three weeks appears vulnerable to the reversal. The Summit of the leaders of the EU in the rearview mirror and the last batch of PMIs of the China and the euro area, the severity of the winds, the world of frame production, the provision of negative thoughts in the short term that can theoretically affect markets can be run dry. Simply, while there appears to be more reasons to be active risk generally short, it may appear more attractive to get shorter at the current level. This opens the way to profit taking to stimulate a corrective recovery until the return of the bear in force before the Greek election rehearsal in mid-June.
The economic calendar is relatively calm European hours, with traders may look to the future, the final revision of may gauge the University of Michigan we trust of consumers as the next significant bit of event risk. Expectations call for confirmation of the results reported to the origin of 77.8, the highest reading since January 2008. After a second week of mixed may survey results, the result could be to tip the balance in the development of the perception of the traders of the US recovery and its ability to mitigate the pressure downward Europe and Asia-focused on global growth.
Asia session: What happened
National CPI Ex-Fresh Food (YoY) (APR)
CPI national Ex food, energy (YoY) (APR)
Tokyo CPI Ex - Fresh Food (YoY) (may)
Tokyo CPI Ex food, energy (YoY) (may)
MNI business conditions survey (may)
Session of the euro: what to expect
German GfK consumer confidence survey (may)
Consumer confidence indicator (may) of France
Italian retail sales (MoM) (MAR)
Italian retail sales (YoY) (MAR)
Italian hourly wages (YoY) (APR)
Italian hourly wage (MoM) (APR)
Critical levels

-> Economic recovery of Japan Blasts past peers as Q1 GDP tops forecasts

Is little more than a year after the devastating earthquake and tsunami that decimated a good part of Japan and its economy, but more recent data suggests a remedy whose-half the resilience and the commitment of the Government of Japan. Recent figures show that Japan's economy far ahead of call-in capture of industrial services, including USA, UK, Germany.
According to the Japanese Cabinet Office, Japan's economy grew in the first quarter, with Gdp mentioned in 4.1% annualized, well above the revised increase of 0.1% in the previous quarter and analysts ' expectations for an increase of 3.5%. In a fourth quarter-in basis, the figures are consistent, 1.0% increase from 0.0% in the previous quarter and slightly besting predictions of 0,9%. According to the report, the better than expected numbers was the result of a combination of factors including increased exports, domestic consumption and public investment in infrastructure reconstruction.
As of this writing, the pair USD/JPY is higher in 80.4620, the EUR/JPY is flat on the 102.1705 and the USD/JPY is higher at 79.7856. OpenBook trader from mencke to Germany has recently closed many professions Yen-crossed with various degrees of profit, a position long USD/JPY which closes with a 23,7% profit, while a long EUR/JPY where a trader with a profit of 22.4% in USD/JPY long who eked out a profit of 0.24%. The trader only has negotiated to OpenBook for about a month, but we can already see some laudable gains on Yen-with crossed lines for the month, the distribution of 4,6% of the pair USD/JPY has provided the trader with a profit of 26.9%, while the allocation of 7% to EUR/USD gave the dealer a return of 10.5%.
OpenBook guru Noe017 from France also had some good success with the Japanese yen, trading during the last quarter, the allocation of 4.8% for the pair USD/JPY gave 5,4% return, while a breakdown by 10,9% EUR/JPY has given a profit of 1.9% over the same period. An open short EUR/JPY close to dead, and a short position in the pair ended recently with a profit of 10.63%. Guru has 234 copiers and 2,493 followers as of writing this and the quarterly P/L is 54.7% and in 6 months is 101.2%.
It also shows improvement for the month of March was industrial production improved 14.2% by 13.9% (revised from 1,5%) on an annual basis. Based on a month to month, the Japanese Ministry of economy, trade and industry reports to 1,3% increase from a revised 1,0%, compared with expectations of 1,1%.
The Bank of Japan said that it is determined to maintain the Japanese Yen value oppressed despite the insurgence of funds safe haven after the eurozone's debt crisis. Despite the improvement in key points of data, the latest news is not likely to change position of the Bank in any way, but in fact might even stronger determination. Analysts believe that growth in Japan is likely to be modest, given the situation in the eurozone crisis and slowdown of the Chinese economy, which will weigh on Japan's exports.

! All eyes on the Fed in the recovery of the US hopes can offset global winds

24 April 2012 11:00 GMT Major Currencies vs. US Dollar (% change) 15 Apr 2012 – 20 Apr 2012

 Talking Points
All Eyes on Fed Policy Decision on Hopes US Can Offset Global Headwinds Soft Patch in US Economic Data May Reflect Catch-Up in Consensus Outlook Japanese Yen, Euro Likely to Underperform if FOMC Reveals Fed Optimism Australian Dollar to Lag Commodity Bloc Counterparts on RBA Rate Cut Bets British Pound Focused on BOE QE Prospects, Q1 GDP Report in the Spotlight The central theme driving financial markets remains the extent to which a recession in the Eurozone and related slowdown in China will hurt overall global output as well as the degree to which a stronger recovery in the US can offset these headwinds. Traders were dutifully reminded of the dangers after HSBC reported that China’s manufacturing activity shrank for a third month in April while the preliminary set of Eurozone PMI readings for the same period revealed factory- and service-sector performance that was vastly worse than expected. The focus now turns to the Federal Reserve monetary policy announcement due on Wednesday for an update on the other side of the equation.
US economic data has increasingly to outperform relative to expectations since the last sit-down of the policy-setting FOMC committee (according to data from Citigroup). This may signal that the pace of recovery is once again faltering after a strong start to the year, replaying similar scenarios in 2010 and 2011. Alternatively, it may reflect a catch-up in economists’ expectations for US growth amid signs of genuine acceleration. A survey of analysts polled by Bloomberg hints the latter may indeed be the case. The median forecast for 2012 US GDP growth rose from 2.2 to 2.3 percent since the last Fed meeting, with upgraded expectations for the first, second and third quarters.
If the recovery is indeed gaining momentum, Ben Bernanke and company ought to keep the policy mix unchanged. Indeed, there seems to be little reason to change an approach that’s finally showing signs of working. The more market-moving component of the outing is likely to be found in the updated set of future interest rate projections from individual FOMC members. Traders will be keen to see if any policymakers now expect rates to rise earlier than the official late-2014 time frame. Changes in forecasts for key metrics including GDP growth, unemployment and inflation will also merit attention, particularly if the overall balance reflects an upgrade in the economy’s prospects. Bernanke’s post-announcement press conference may likewise spark volatility in the event that any of the Chairman’s remarks catch the markets off-guard.
On balance, the revelation of a comparatively optimistic Fed is likely to see the US Dollar rise against currencies where the yield outlook is materially less robust, particularly the Japanese Yen (where USDJPY continues to track 10-year Treasury yields). The possibility of additional stimulus at the Bank of Japan rate decision on Friday as it struggles to gain traction toward its 1 percent inflation target would Yen weakness. The Euro is also likely to renew its drive lower, although correlation studies point a stalemate between rates expectations and risk trends as drivers of price action, meaning directional momentum may be somewhat subdued.
The implications of an upbeat FOMC for growth-linked currencies are a bit mixed in that a stronger US recovery would be supportive for risk appetite. We suspect the Canadian and New Zealand Dollar will broadly hold recent ranges as receding fears of further USD dilution clash with moderation in global slowdown fears. A non-event RBNZ rate decision later in the day is likely to reinforce this dynamic. By contrast, the Australian Dollar is likely to find itself under pressure however as rate cut expectations build in the wake of a dismal first-quarter CPI print.
The British Pound largely stands apart from sentiment trends to focus on domestic policy following last week’s surprisingly hawkish BOE meeting minutes and strong set of good economic data (CPI, jobs, retail sales). This puts the first-quarter UK GDP report at center stage. Expectations call for a 0.1 percent increase after output shrank in the previous period. This would avoid a technical recession and reinforce the diminishing probability of another expansion of QE at May’s BOE policy meeting, driving Sterling higher. Needless to say a disappointing outcome would produce the opposite result.
EURO

 Source: Bloomberg
BRITISH POUND

 Source: Bloomberg
JAPANESE YEN

 Source: Bloomberg
CANADIAN DOLLAR

 Source: Bloomberg
AUSTRALIAN DOLLAR

 Source: Bloomberg
NEW ZEALAND DOLLAR

 Source: Bloomberg

ECONOMIC DATA ANALYSIS - GLOBAL RECOVERY HOPES, BUT EVENT RISK STILL LOOMS LARGE

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ECONOMIC DATA ANALYSISFRIDAY 2 MARCH 2012GLOBAL RECOVERY HOPES, BUT EVENT RISK STILL LOOMS LARGE.  Deadline for PSI poses last main hurdle to secure Greek bail-out• MPC and ECB to meet amid mixed economic data and rising input price pressures• US ‘Super Tuesday’ and February Employment Report pose risk to bond marketsWhile one swallow doesn't make a summer, the recent pick-up in the economic data and the better sentiment in peripheral Europe raise the possibility that maybe, just maybe, the global upswing is starting to gain traction. The past week has been no exception. In the US, an upward revision to Q4 GDP,  a sharp jump in the Chicago PMI, the downtrend in jobless claims and better pending home sales data continue to bolster recovery hopes. There was also positive developments across Europe, with Greece's second bailout on course and banks flush with cheap liquidity following the ECB’s ‚¬530bn LTRO2. In the UK, the February CBI distributive trades survey suggested retail conditions are improving, while the latest pick-up in broad money growth hinted that UK credit conditions may not be quite as tight as previously thought.But the data has not been all one way, with the weakness of the national manufacturing PMIs - both in the US and across Europe - providing something of a reality check over the last few days. More generally, implementation risk in Greece, the process of deleveraging and the ongoing need for fiscal restraint continue to pose major challenges for many economies. The recent rapid escalation in the oil prices also represents a formidable threat. If sustained it could put a major spoke in the wheel of global inflation and recovery hopes.For now, however, the markets appear to be giving the prospect of economic recovery the benefit of the doubt. Peripheral sovereign spreads have continued to fall sharply, equities have firmed and tensions in the wholesale funding markets have eased. Amid the rally in risk assets, UK, US and core Euro area government bond yields (and swap rates) have pushed higher, while the yen has hit a nine-month low and gold prices have dropped back. Over the coming week market sentiment could be tested,  with two key event risks to negotiate - the deadline for the Greek PSI deal on 8th March and US ‘Super Tuesday’. The PSI deadline represents the last main hurdle for Greece to secure its bailout and avert default. In all likelihood, the debt-swap agreement will garner enough support, but this may require Collective Action Clauses (CACs) to be invoked. If so, this would likely constitute a credit event by ISDA, thus triggering CDS payouts.  While on one level confirmation that Greece is set to receive its funds may be viewed positively by the markets,  the triggering of CDS payments could lead to heightened volatility for those institutions that have short CDS exposures and set a precedent for the future.
In the US, it’s a key week for US primaries - ˜Super Tuesday’ - with 10 states due to select delegates for the Republican National Convention when the GOP presidential candidate is officially declared. A strong showing by Mitt Romney on Tuesday would effectively secure his presidential nomination. From a market perspective, this may serve to heighten the uncertainty about the presidential election  outcome and, by extension, the uncertainty over the fiscal outlook - particularly given Romney’s support for lower business taxes and for making the Bush tax cut permanent. In terms of economic data, the US employment report will also be watched closely in the coming week for ongoing signs of recovery. We expect another solid outturn, with payrolls forecast to have risen by  200k+ for the third consecutive month. Non-manufacturing ISM and factory orders data are also due out in the week.
Elsewhere, the ECB and MPC are both due to meet. Following recent monetary stimulus, neither is expected to announce any fresh measures. At the ECB press conference, Draghi's comments have, as always, the potential to move markets. His comments are likely to come against the backdrop of some softening in the euro area services PMIs. Meanwhile, after recent strong gains, the coming week’s UK services and industrial production figures will be watched for signs that the pace of improvement may be starting to slow.


UK DATA PREVIEW                                               
FRIDAY 2 MARCH 2012MPC announcement (Mar) The minutes of the February MPC meeting showed the Committee’s recent unanimity had fractured. Members Posen and Miles both voted for £75bn of QE, greater than the consensus £50bn. Moreover, of the remaining seven members, “some” thought “a case could be made for maintaining the stance of policy”. March’s meeting is less contentious. Having sanctioned £50bn of QE last month there is no need or expectation to alter policy this time, quite apart from March being the month with the fewest policy changes in the MPC’s history. Bank Rate should remain at 0.50% and the Asset Purchase target at £325bn. The decision following the expiry of this round of QE, in May, will be the next big call for the MPC. With trends in recent data uncertain, this could cause a deeper rift on the Committee.Services PMI (Feb) The improvement in the services PMI over the last five months has been impressive. The index reached a nonsnow distorted 28-month low in August of 51.1. Last month it rose to 56.0, its second highest reading in the last 22- months. However, the recent retracement in the manufacturing PMI cautions against excessive optimism and we forecast a modest fall in the services PMI to 55.3. Historically, this level of the PMI has marked a neutral territory for monetary policy, not weak enough for further stimulus, nor strong enough for tightening. However, the PMI excludes government and distribution, including retail, sub-sectors which are seeing a long-term structural adjustment. Hence total services output should be weaker than implied by the PMI andIndustrial production (Jan) The performance of industrial output in recent quarters has been disappointing. Having contracted in 3 out of the past 4 quarters, industrial production ended 2011, 1.3% lower than 2010. However, the recent improvement in surveys of production activity marks a turnaround in sentiment to levels that now point to modest gains in manufacturing output over the coming months. While we expect this to be the case as we move through Q1, we suspect that the momentum may not be strong enough to deliver a second consecutive rise in manufacturing output following last month’s strong 1.0% m/m rise and pencil in a small 0.1% monthly contraction. The wider industrial production measure is likely to have been boosted by a rebound in utilities and mining output following declines in Q4. As such we look for a modest 0.1% m/m increase in industrial output.Producer prices (Feb) Input price inflation has slowed sharply over recent months from a peak of 18.5% last July to 7.0% currently. However, this trend is likely to have been halted last month by a pickup in global commodity prices. Oil prices in sterling terms alone rose to a record high of £77.7/barrel and ended the month 5% higher than in January. We expect input prices to have risen by 1.0% m/m in February, pushing the annual rate up to 7.1%. Similarly for output prices we expect the annual rate to have held at 4.1%, with ‘core’ output price inflation expected to have picked up last month to 2.9% from 2.4%. While favourable base effects provide scope for the downward trend in producer price inflation to be resumed over coming months, geopolitical tensions and the pace of global activity will be key in the determining the pace and extent of any deceleration beyond spring.DIsclaimerThis document, its contents and any related communication (altogether, the 'Communication') does not constitute or form part of any offer to sell or an invitation to subscribe for, hold or purchase any securities or any other investment. 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