Intraday Market Thoughts

Papademos Boosts Risk Trades Despite Sluggish Ezone Data

by Adam Button
Jan 31, 2012 10:16

Signs that Greece is nearing a debt-swap deal spurred risk taking in early trading Tuesday. NZD and EUR are leading while the US dollar lags. German unemployment rose and retail sales fell. UK consumer credit hits a fresh record low.

Comments from Greek PM Papademos sparked rallies in the euro and commodity currencies including assurances that he is strongly committed to reaching a PSI deal. He also said major progress has been made.

Market participants clearly do not want to be short euros when the headlines cross that sides have reached a PSI agreement. Once that news is out of the way, it is likely the euro will resume its decline as issues in other periphery countries and slow growth throughout the continent come to the forefront.

Economic data was mixed in Asia but showed some negative signs. In Japan, industrial production leaped 4.0% in December compared to the 3.0% expected. On the downside, output remains 5% below where it was a year earlier. Unemployment also ticked to 4.6% from 4.5%.

Perhaps most telling was a forecast from Honda, which said it expects to earn 215B yen in revenue in the year ending March 31 compared to the 250B yen analyst estimate. Executives are confident about a rebound the following year but USD/JPY at 76.20 is a massive headwind.

The news was better in the UK as the GfK consumer confidence survey improved to -29 from -33, beating the -32 consensus. It was the best reading since June.

In Australian, the NAB business confidence index improved to 3 in December a seven-month high. The OIS market shows a slightly better than 60% chance of an RBA cut next week.

Eurozone Dec unemployment rose to 10.4% from an upward revised 10.4% in Nov.

German Jan unemployment fell 34Km/m vs forecasts of a decline of 12.5K. Jan unemployment 6.7% from 6.8% in Dec.

German Dec retail sales -1.4% m/m, -0.9% Y/Y, well below forecasts

UK net consumer credit fell by GBP 377 million in Dec, its largest monthly fall on record, so did broad money supply data also showed record monthly falls. December mortgage approvals rose to 52,939 from 52,628 in November, the biggest rise since Dec 2009.

The FT says more European banks will tap the ECB for emergency funds nearly twice as much or more than in December's first round of funding. As much as EUR 1 trillion could be tapped at the next 3-year ECB auction


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