$ Dollar Gains on Spain Rating Cut, US GDP Report on Tap Ahead

27 April 2012 07:09 GMT  Talking Points Dollar, Yen Gain on Haven Demand as S&P Cuts Spain’s Credit Rating US GDP Report May Force FX Markets to Rethink Likelihood of QE3 Italian Bond Yields on Returning Credit Stress Ahead of Debt Auction The US Dollar (ticker: USDollar) and Japanese Yen outperformed in overnight as Asian stocks declined, boosting demand for the go-to safe haven currencies, after Standard & Poor’s cut Spain’s sovereign credit rating and assigned it a negative outlook, saying a recession will undermine the government’s ability to reduce the budget deficit. Eurozone crisis fears overshadowed would-be downward pressure on the Yen after the Bank of Japan expanded its stimulus efforts by a cumulative ¥10 trillion yen, broadly in line with market expectations.
Futures tracking key European stock indexes and the S&P 500 are sharply lower, hinting the risk-averse is set to carry forward into Wall Street trade. On the data calendar, the focus is first-quarter US Gross Domestic Product figures, where expectations point to a 2.5 percent annualized quarterly increase after a 3 percent rise in the three months through December.
The result is likely to be interpreted in the context of this week’s FOMC policy meeting, with a better-than-expected outcome carrying the possibility of reminding traders that Ben Bernanke’s commentary was hardly as supportive of QE3 as traders’ initial reaction suggested. Alternatively, a disappointing print will further fuel stimulus bets and may renewed downward pressure on the greenback.
Elsewhere, an Italian bond auction will be interesting to watch as Eurozone debt crisis fears heat up anew. Rome is scheduled to sell a tranche of 2016-2022 debt, with investors keeping a close eye on average yield levels to gauge the severity of returning funding stress. The spread between yields on benchmark German 10-year bonds and Italian equivalents rose 14bps ahead of the sale, tapping a three-month high at 410bps.
Asia Session: What Happened
Markit/JMMA Manufacturing PMI (APR)
Overall Household Spending (YoY) (MAR)
National CPI Ex-Fresh Food (YoY) (MAR)
National CPI Ex Food, Energy (YoY) (MAR)
Tokyo CPI Ex-Fresh Food (YoY) (APR)
Tokyo CPI Ex Food, Energy (YoY) (APR)
Industrial Production (MoM) (MAR P)
Industrial Production (YoY) (MAR P)
Industrial Profits YTD (YoY) (MAR)
MNI Business Confidence Survey (APR)
Vehicle Production (YoY) (MAR)
Construction Orders (YoY) (MAR)
Annualized Housing Starts (MAR)
Euro Session: What to Expect
German GfK Consumer Confidence Survey (MAY)
German Import Price Index (MoM) (MAR)
German Import Price Index (YoY) (MAR)
French Producer Prices (MoM) (MAR)
French Producer Prices (YoY) (MAR)
French Consumer Spending (MoM) (MAR)
French Consumer Spending (YoY) (MAR)
KOF Swiss Leading Indicator (APR)
Critical Levels

Asian Market Update: Moody's EU sovereign rating action puts markets on the defensive; BoJ announces new easing to the tune of an additional 10T

- (JP) BANK OF JAPAN (BOJ) LEAVES TARGET RATE RANGE UNCHANGED BETWEEN 0.0% TO 0.10% AS EXPECTED; EXPANDS ASSET PURCHASE FUND BY ¥10.0T to ¥65.0T; SETS 1% INFLATION TARGET
- (JP) JAPAN DEC FINAL INDUSTRIAL PRODUCTION M/M: 3.8% V 4.0% PRELIM; Y/Y: -4.3% V -4.1% PRELIM; CAPACITY UTILIZATION M/M: 3.1% V -2.9% PRELIM
- (NZ) NEW ZEALAND JAN REINZ HOUSE PRICE INDEX M/M: -1.4% V -0.1% PRIOR; Y/Y: 25.2% V 20.9% PRIOR
- (AU) AUSTRALIA JAN NAB BUSINESS CONDITIONS: +2 V 0 PRIOR; CONFIDENCE: +4 V 3 PRIOR (7-month high)
- (UK) UK JAN RICS HOUSE PRICE BALANCE: -16% V -17%E
- (NZ) NEW ZEALAND JAN QV HOUSE PRICES Y/Y: 2.7% V 2.4% PRIOR (16-month high)
- (NZ) NEW ZEALAND JAN FOOD PRICES M/M: 0.0% V 0.2% PRIOR (3-month low)
- (CN) China Jan car sales -23.8% y/y v +26.7% prior
***Markets Snapshot (as of 05:30GMT)***
- Nikkei225 +0.5%
- S&P/ASX -0.9%
- Kospi -0.2%
- Taiwan Taiex -0.4%
- Singapore Straits Times -0.1%
- Shanghai Composite -0.7%
- Hang Seng -0.1%
- S&P Futures -0.3% at 1,345
- April gold -0.4% at $1,718/oz
- March Crude -0.3% at $100.57
***Overview/Top Headlines***
- A negative tone was set for the equities markets today by Moody's action after the US close and right before the open of Australia on European sovereign ratings. The Greenback gained against the other majors as well as emerging market currencies, A$ fell 0.4% to $1.0669 while the NZ$ tested $0.8290. Moody's affirmed the EFSF. Austria, France and the UK had their AAA ratings affirmed, outlooks were cut to negative. This is the first ratings agency action on the UK, which makes it particularly notable. Moody's cut Italy by 1 notch to A2, Spain by 2 notches to A3 and Portugal one notch to Ba3 all outlook negative. In Eastern Europe Slovakia and Slovenia were both cut one notch to A2 with a negative outlook. Main drivers for the ratings action were uncertainty over EU prospects for reforms and fiscal and economic framework as well as increasingly weak macroeconomic prospects all which constrains the creditworthiness of all EU sovereigns to a varying degree. The EUR/USD fell to $1.3146 though the range for the session was about 50 pips.
- Bank of Japan as expected left the target rate unchanged at 0.0-0.1%, they announced an unexpected expansion to their asset purchase program by ¥10.0T, bringing the total to ¥65.0T. The increase will be used for JGB buying, which is similar to October action. As Japanese press speculation the BoJ did set its first official inflation target of 1%. USD/JPY extended to a 2-week high above ¥77.80 before extending to session highs of ¥77.99. EUR/JPY tested above ¥102.60. BoJ action boosted the Nikkei225 to close at its highest level since Sept. The move also saw Hong Kong and Singapore creep into positive territory. In Australia BHP and Rio Tinto fell after announce a huge expansion in Escondida copper mine in Chile. Uranium miner Paladin had a wider y/y loss in H1 results despite strong production numbers.
***Speakers/Geopolitical/In the press***
- (US) Fed's Williams: Vital to keep monetary policy throttle wide open; Need to lower unemployment and return inflation to 2.0% quickly to minimize the damage to the economy >- (CN) China Banking Regulatory Commission (CBRC) may relax new capital adequacy requirements expected to take place in 2012 to ease the balance sheet pressure - Chinese press
- (CN) Former PBOC Deputy Gov: China will not boost loans and debt in order to cure economic issues - Shanghai Securities News
- (AU) RBA Assist Gov Debelle: Next LTRO plan may ease sovereign pressure; Market uncertainty to remain for some time
- (NZ) New Zealand Dep Fin Min Joyce: Strong NZ$ is presenting a challenge but exports continue to grow
***Equities***
- Tepco, 9501.JP: Govt is threatening to withhold ¥1.0T in aide unless Tepco allows itself to be nationalized - Japanese press
- DBS.SG: China unit to increase staff in China by 25% or 2,000 people in 2012
- BHP: Reports a major reserve increase of 17% at Escondida and increase in investment; approves $2.6B increase in Escondida investment - financial press
***US Equities***
- NSIT: Reports Q4 $0.78 (incl benefit) v $0.49e, R$1.36B v $1.4Be; +14.1% after hours
- USTR: Reports Q4 $0.64(adj) v $0.63e, R$1.20B v $1.2Be
- RAX: Reports Q4 $0.18 v $0.15e, R$283M v $281Me; names Karl Pichloer as new CFO; +6.9% after hours
- LPS: Reports Q4 $0.72 v $0.58e, R$534M v $518Me; -1.2% after hours
- FIS: Reports Q4 $0.66 (adj) v $0.65e, R$1.5B v $1.5Be; -0.6% after hours
***FX/Fixed Income/Commodities***
- (AU) Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES): Revises winter wheat forecast to 29.5M, +4.2% from Dec estimate and 5.7% y/y
- (CN) PBoC sells CNY6.0B of 28-day repos at 2.8%
- SLV: iShares Silver Trust ETF daily holdings fall to 9,658 tons from 9,700 tons (first decline since Jan 25th)
***Rating Action***
- (FR) MOODY'S CUTS FRANCE OUTLOOK TO NEGATIVE FROM STABLE; AFFIRMS AAA SOVEREIGN RATING
- (UK) MOODY'S: UNITED KINGDOM OUTLOOK CUT TO NEGATIVE FROM STABLE; AFFIRMS AAA SOVEREIGN RATING
- (IT) MOODY'S: ITALY SOVEREIGN RATING CUT ONE NOTCH TO A3 FROM A2, NEGATIVE OUTLOOK
- (AT) MOODY'S: CUTS AUSTRIA SORVEREIGN OUTLOOK TO NEGATIVE FROM STABLE; AFFIRMS AAA SOVEREIGN RATING
- (ES) MOODY'S: SPAIN SOVEREIGN RATING CUT TWO NOTCHES TO A3 FROM A1, NEGATIVE OUTLOOK
- (PT) MOODY'S: PORTUGAL SOVEREIGN RATING CUT ONE NOTCH TO BA3 FROM BA2, NEGATIVE OUTLOOK
- (EU) MOODY'S AFFIRMS AAA RATING FOR EUROPEAN FINANCIAL STABILITY FACILITY (EFSF); STABLE OUTLOOK
- (SL) MOODY'S: CUTS SLOVENIA SOVEREIGN RATING ONE NOTCH TO A2 FROM A1, NEGATIVE OUTLOOK
- (SO) MOODY'S: CUTS SLOVAKIA SOVEREIGN RATING ONE NOTCH TO A2 FROM A1, NEGATIVE OUTLOOK