Intraday Market Thoughts

Euro Neutral Despite Strong ZEW, Auctions, IP Next

by Patrik Urban
Apr 17, 2012 13:06

UK and Eurozone CPI rose; German ZEW improved; Eurozone ZEW higher; solid Spanish auction. Market turns to BOC rate decision, building permits, housing starts and IMF economic outlook. Latest Premium Intermarket Insights on EURUSD, EURJPY, AUDUSD, gold & US crude oil are below.

Strong European data along with solid Spanish auction helped to underpin risk during the London session. The USD is lower across the board and European equities are gaining over 1%. Relative strength winners are GBP and CAD.

High consumer inflation in the UK proved to be stickier than the BOE anticipated as March CPI rose 3.5% from previous 3.4% (core CPI rose 2.5% from 2.4%). This is the first inflation increase since September 2011 and it greatly reduces chances of additional QE announcement during MPC May meeting. GBPUSD rose sharply on the announcement to 1.5968.

Rising prices are also a problem in the Eurozone as CPI rose in March to 2.7% from 2.6% y/y (core CPI rose to 1.6% from 1.5%). The increase is mainly attributed to rising energy costs.

German ZEW economic sentiment rose to 23.4 in April from 22.3 in March and the current conditions improved to 40.7 from 37.6. Eurozone April ZEW economic sentiment improved to 13.1 from 11.0 which was the 5th back to back advance.

Awaited Spanish auction for 12 and 18 month bonds resulted in higher yields but the cover improved and the take up was above target as Spain sold EUR 3.18 bln vs. target EUR 2-3 bln. Spanish 10 year yield fell back below 6% to 5.92%.

The NY session starts at 8:30 am ET with March building permits and housing starts that are seen at 0.71M from 0.72M and at 0.71M from 0.7M respectively. The market could also respond to ECB president Mario Draghi who delivers opening remarks at the ECB statistics conference in Frankfurt.

BOC announces their rate decision at 9:00 am ET. It is widely expected that the rate will remain unchanged at 1% but if the BOC hints a coming hike in the accompanying statement, the CAD would rise.

The markets also await world economic outlook that the IMF will release at 9:00 am ET. Capacity utilization and industrial production come 15 minutes later and are expected to decline slightly to 78.6% from 78.7% and rise to 0.4% from 0% respectively.

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