Phynix Markets

Asian Market Update

2012-02-08T13:28:00.000+05:30

Markets hopeful for a solution in Greece; USD gains against the yen

Economic Data

(JP) JAPAN DEC CURRENT ACCOUNT TOTAL: ¥303.5B V ¥340BE; ADJUSTED CURRENT ACCOUNT TOTAL: ¥752.3B V ¥625BE (3-month high); CURRENT ACCOUNT TOTAL Y/Y: -74,7% V -71.2%E; TRADE BALANCE: -¥145.8B V -¥135BE
(JP) JAPAN JAN BANK LENDING INCLUDING TRUSTS Y/Y: 0.6% V 0.6%E (27-month high); EX-TRUSTS Y/Y: 0.7% V 0.5% PRIOR
(UK) UK BRC SHOP PRICE INDEX Y/Y: 1.4% V 1.7% PRIOR (22-month low)
(KR) SOUTH KOREA JAN BANK LENDING TO HOUSEHOLDS (KRW): 452T V 455.0T PRIOR
(KR) SOUTH KOREA DEC MONEY SUPPLY L Y/Y: 9.4% V 8.9% PRIOR; M2 Y/Y: 4.4% V 4.4% PRIOR
(JP) JAPAN JAN BANKRUPTCIES Y/Y: -2.6% V -6.3% PRIOR
(JP) JAPAN JAN ECO WATCHERS CURRENT SURVEY: 44.1 V 47.4E (1st decline in 2-months); OUTLOOK SURVEY: 47.1 V 45.5E
(IN) India Jan Local Car Sales +7.2% y/y

Markets Snapshot (as of 05:30GMT)

Nikkei225 +0.8%
S&P/ASX +0.4%
Kospi +0.9%
Taiwan Taiex +2.1%
Singapore Straits Times +0.6%
Shanghai Composite +1.1%
Hang Seng +0.8%
S&P Futures +0.1 at 1,345
April gold +0.1% at $1,750/oz
March Crude +0.6% at $98.97

Overview/Top Headlines

Markets started off to the upside before gaining some momentum and making strong gains for the rest of the Asian trading session. Confidence has re-entered the market that the Greek debt situation will be resolved. PM Papademos met with Troika officials today to "put the finishing touches" on terms for the next bailout package and will meet with politicians today to talk about next round of austerity measures. EUR/USD traded in a 40 pip range testing $1.3275. The outperformers of the session were the Taiex, with 163 point and the Hang Seng with over 200 points. Nikkei225 was boosted by Toyota Motors, who raised its profit forecast after the close yesterday. China energy names were boosted by China's move to raise fuel prices for the first time in 10-months. Shares of BHP fell, though moderated as the session went on, after reporting weaker than expected H1 results before the open. Trading on the ASX remained subdued. In Japan Current Account Surplus fell to a 15 year low in 2011, with a larger than expected trade deficit due to lower exports and higher energy costs. USD/JPY was in a 40 pip range, rising to ¥77.16 after the Nikkei close, EUR/JPY held a 90 pip range ¥102.40-101.67. AUD/USD continued to strengthen rising over $1.0830. The Greenback was lower against the KRW, S$, NT$ and PHP.

Speakers/Geopolitical/In the press

(IN) Reserve Bank of India (RBI) Deputy Gov Gokarn: Open market operations are still on the table, no decision to stop them
(KR) According to Bank of Korea (BOK) data, bank loan ratio for smaller companies fell to record low 78.8% from 88.8% in early 2007 - Korean press
(CN) China top-4 banks had new yuan loans of CNY340B in January v CNY130B in Dec - China Securities Journal
(NZ) New Zealand raises minimum wage from NZ$13/hr to NZ$13.50/hr

Equities

BHP: Reports H1 Net $9.9B v $10Be; Rev $37.5B v $34.2B y/y
UMC: Reports Q4 Net NT$1.18B v NT$810Me, Rev NT$24.43B v NT$31.32B y/y
AUO: Reports Q4 Net loss NT$20.98B v loss NT$15.3Be; Rev NT$89.5B v NT$102.6B y/y
CHL, 941.HK: Hong Kong unit acquired 15-yr licensed use of 30MHz bandwidth radio frequency band from the Office of the Telecommunications Authority, enabling to offer LTE(4G) service - DigiTimes
Li & Fung, 494.HK: Cutting staff responsible for its European operation in Hong Kong due to the uncertain economic outlook in the EU - HK press
Renesas Electronics, 6723.JP: Discussing plans with Fujitsu and Panasonic to integrate their system chip manufacturing operations - Nikkei News
RIO: To invest an additional $3.4B into Pilbara expansion; Targeting Pilbara output of 283M tons/year by H2 2013

US Equities

WU: Reports Q4 $0.40 v $0.40e, R$1.43B v $1.4Be; Increases dividend 25% to $0.10 from $0.08; -6.6% after hours
RAH: Reports Q1 $1.33 v $1.38e, R$1.38B v $1.3Be; +0.4% after hours
PNRA: Reports Q4 $1.42 v $1.42e, R$495.8M v $499Me; CFO leaving company; Raises FY12 EPS guidance; -2.8% after hours
LNC: Reports Q4 $1.00 (adj) v $1.00e, R$2.71B v $2.8Be; -4.5% after hours
AVID: Reports Q4 $0.38 (adj) v $0.16e, R$185.3M v $177Me; +17.7% after hours
DIS: Reports Q1 $0.80 v $0.71e, R$10.8B v $11.2Be; -1.4% after hours

FX/Fixed Income/Commodities

(US) API PETROLEUM INVENTORIES CRUDE: -4.53M V +2.5ME (first draw in 3 weeks); GASOLINE: +4.43M V 0E; DISTILLATE: +390K V -1ME; UTILIZATION: 83.9% V 81.9% W/W
(TW) Taiwan Govt sells NT$35B of 30-yr bonds, yield of 1.865% (1.9% prior); Bid to cover 1.82x
AUD/USD: (AU) Australia Treasurer Swan: Strong A$ is causing strain and stress on the economy
USD/PHP: (PH) Philippines Central Bank Deputy Gov: We only enter the markets to ensure orderly forex dynamics
(CA) Canada sold $3B in 5-year USD-denominated debt; First "Yankee Bond" offering since Sept 2009 - US financial press
(CN) China MoF sells 1-yr bills at 2.87% v 2.78% on Jan 10th
(AU) Australia's Port Hedland Jan iron ore shipments at 17.4M tons; 14M tons shipped to China
SLV: iShares Silver Trust ETF daily holdings rise to 9,664 tons from 9,649 tons (highest since 9,698 on Dec 20th)

Optimism Remains As The Market Continues To Wait For A Greek Deal

2012-02-08T13:25:00.000+05:30

O/N BULLETS

UK BRC Shop price index up 1.4% y/y in January.
Bernanke pledges to keep rates low till late 2014 on concerns of weakness in job market
Japan Current account surplus rose to JPY303.5bn in December, less than expected

USD

USD traded lower yesterday as EUR/USD made year highs on optimism towards Greece; even the news that the meeting between the Greek party leaders was delayed to today did little to hamper risk sentiment overnight. USD/JPY edged higher during the risk-on move as spreads moved in favour of USD. But USD/CHF traded lower largely due EUR strength which saw EUR/USD and to a less extent EUR/CHF higher. With risk sentiment still positive on Greece, the downside bias to USD will likely remain today.

EUR

EUR/USD broke through the 1.3250 level yesterday following news the Greek government were working on a final draft for the bailout agreement. Talks between Greek party leaders were postponed to today, but EUR/USD continued to edge higher. While the market remains optimistic that a deal will be reached, EUR/USD will likely struggle to break higher, as we wait for news from Greece. But with EUR/USD already up two figures since Monday, a good outcome looks largely priced in and the upside could be vulnerable to positive news.

GBP

EUR/GBP edged higher yesterday, as the EUR rallied on optimism towards Greece. After some good numbers from the UK, there have been doubts whether the BoE will announce additional asset purchases at tomorrow's meeting. But market consensus and our economists expect another £50bn of QE; this could see this weigh on GBP performance today. And with Greece nearing an agreement, EUR/GBP will likely continue to edge higher towards the 0.84 level.

CHF

EUR/CHF continued to trade higher yesterday, partly helped by a stronger EUR/USD but largely due to SNB's Jordan's comments. He reiterated the SNB's determination to defend the 1.20 floor in EUR/CHF, and reassured markets the SNB would act at anytime, which would avoid a quick break below the 1.20 floor. He explicitly stated 'the commitment applied at any time, from when market opens in Sydney on Monday to when it close in New York on Friday'.

Spotlight – AUD - NZD 2y rate spread move in favour of AUD – Yesterday's RBA decision to keep rates on hold at 4.25%, against market expectations of a 25bp cut, saw rates move in favour of AUD vs NZD and AUD/NZD edge higher. AUD/NZD had been declining since the start of the year after it diverged from the 2y spread at the end of 2011 (chart below). NZD has been the notable out performer in G10 this year, closely followed by AUD and we still maintain our downside bias to AUD/NZD. The market continues to price in further rate cuts in Australia over the next few months; while the RBNZ have resisted removing the emergency 50bp cut implemented last year so far after some weaker inflation numbers in Q4. This evenings Q4 employment numbers could see some focus, and a good number could move in rate spreads back in favour of NZD

USD Tumbles As Sentiment Moves Higher

2012-02-08T13:21:00.000+05:30

The buck reversed earlier gains after Bernanke downplayed recent labor data and the euro rose amid hopes that Greek debt and austerity negotiations are in the final stages. With no top tier economic data released out of the U.S., it was headlines once again that drove price action. Fed Chairman Ben Bernanke testified before the Senate Budget Committee and cautioned that the current unemployment rate 'no doubt understates the weakness of the labor market', noting the reduction in the labor force due to those that are discouraged. The dovish comments boosted market sentiment as it was interpreted that further accommodation is still under consideration. The prospect of QE3 put pressure on the US dollar with the greenback declining against all of the G10 currencies except for the yen.

The euro surged to new highs for 2012 against the USD as the common currency was boosted by prospects for a Greek debt deal in the coming days. Reports that a final draft of the bailout agreement is nearing completion and comments from the IIF that recent talks have been 'constructive' helped the euro to gain against all of its major counterparts today. EUR/USD rallied to trade above its key 38.2% Fibonacci retracement level (of the decline from October highs to January lows) after rebounding from the base of its daily ichimoku cloud.

U.S. equities finished higher after a negative start to the day with the DJIA closing the session up by about +0.26% while the S&P 500 edged higher by around +0.20%. Commodities gained on the back of a weaker USD with the precious metals gold and silver currently higher by about +1.51% and +1.63% respectively while crude oil advanced by nearly +1.91%. UST yields rose across the curve as risk sentiment was supported and the 10-year Treasury yields are currently up 6.8bps to around 1.975%.

There is relatively light economic data flow due out tonight with Japan’s December current account figures and January Eco Watchers survey as the only significant scheduled releases.

Australian Trade And Building Permits - Impact On AUD/USD

2012-02-02T13:06:00.000+05:30

Release: AUS Trade Balance (Dec)
Flash Reading: 1.22B
Previous: 1.38B
Date/Time: 01/31/12 7:30PM ET (03:30 GMT, 02/02)
Release: Australian Building Approvals (Dec)
Consensus Forecast: 2.1%
Previous: 8.4%
Date/Time: 02/01/12 7:30PM ET (00:30 GMT, 02/02)

Global Manufacturing Rebounds in January, How Did Aussie Trade Do in 4Q
Today's global manufacturing reports were generally positive. When you average the major PMIs, they edged up to 51.4 from 50.5 in December, JP Morgan says. That shows that industrial production picked up after a lull in the 4th quarter. More production is good for Australia's export sector, as it has plenty of raw materials - iron ore, coal - to ship to developing nations like China and India.

Australia's terms of trade has been a major strength for the Australian Dollar. The trade balance has been in surplus 19 out of the last 20 month, and is a major reason that the Australian economy has been able to weather some soft domestic demand and a cooling housing sector.

A surplus of A$1.22 billion is expected, which would be the lowest reading in 9 months. A positive surprise would have a positive impact on Australian equities, and can help boost the value of the AUD.A negative surprise would perhaps undermine the recent Aussie gains, and give the AUD/USD pair a chance to retrace its steps from its highs in the NY session.

Australian Housing Facing Tailwinds, How Will Permits Hold Up?
Speaking of the housing market, Australia also releases its latest reading on building permits. Permits are expected to rise 2.1% in December, following an 8.4% increase in November.

That would mean a slowdown in constructions, and the possibility of an undershoot is strong considering the weaker data seen in both housing prices and new home sales that came out in the Wednesday's Asian session.
From Bloomberg: 'Australian house prices plunged by the most on record in 2011 as global economic uncertainty and concerns about its impact at home kept a lid on demand.

An index measuring the weighted average of prices for established houses in eight major cities slid 4.8 percent from a year earlier, according to the Australian Bureau of Statistics, the biggest calendar-year drop since the data began in March 2002.

They fell 1 percent in the three months to December from the previous quarter, when they retreated a revised 1.9 percent. The median estimate of 15 economists surveyed by Bloomberg News was a 0.6 percent quarterly fall.'

'Sales of new homes fell a seasonally adjusted 4.9 percent in December, with detached house sales dropping 7.7 percent, a separate report from the Housing Industry Association showed.'

Falling housing prices are a sign of a weak housing market where supply exceeds demand. The RBA cut interest rates twice at the end of 2011, and so there should be some positive lift on housing from that, and there still remains a structural shortage of housing in the country

Still, the run up in prices in Australia over the last 20 years has been quite massive, and therefore the sector may still only be in the beginning stages of a peak in the housing market. The image above runs through 2010 (click for larger image) and gives you the sense of how inflation prices have gotten compared to the average income.

Building permits data will be another key gauge as to the health of the housing market in Australia and can help impact equities as well as the decision that the RBA will make regarding interest rates when it next meets on February 7th.

And What's Next for Aussie?

In the bigger picture, we are intesly interested in what happens next for the AUD/USD and today's reports can be an important risk event. Overtly negative readings can be a catalyst for a decline in the pair, while better than expected data can help push the pair to test key resistance levels from the 2nd half of 2011.

The pair has had an impressive run since mid-December, and now approaches a key critical level from late August and late October at 1.0750. The daily RSI is also approaching 'overbought' levels, though it has maintained its rally since hitting the '70″ level 2 weeks ago.

Stocks Higher On Signs Manufacturing Is Strengthening

2012-02-02T13:03:00.000+05:30

Asian Markets are set to open higher after U.S. stocks advanced, snapping a four-day decline in the Standard & Poor's 500 Index, amid signs that manufacturing across the world is strengthening.
The S&P500 rose 1324.09 points, or 0.89%, to close at 1324.09 sectors closing in the green. The Dow Jones Industrial Average finished 83.55 points higher, or 0.66%, at 12716.50, while the Nasdaq gained 34.43 points or 1.22%.

Equities rallied after data showing manufacturing in the U.S. grew at the fastest pace in seven months. Factory indexes in China improved and a U.K. manufacturing gauge jumped to an eight-month high. In Germany, output grew for the first time since September. Manufacturing contracted less than initially estimated in the euro region. A spokesman said Greece expects to complete talks on a private sector debt swap and a second international financing deal for the country in the next days.

The euro rose against the dollar for the first time in three days as a purchasing managers' index of manufacturing output in the region beat analysts' estimates, adding to signs Europe's economy is stabilizing.

The Euro climbed 0.6% to $1.3161
Oil declined to a six-week low after the Energy Department reported U.S. inventories climbed more than expected and gasoline demand tumbled to a 10-year low. Crude oil for March delivery fell 87 cents to $97.61 a barrel.

Gold rose as the dollar slipped against the euro and on strong global manufacturing data, while analysts said profit-taking could pressure the precious metal after its biggest January gain in 32 years. U.S. gold futures for April delivery settled up $9.10 at $1,749.50 an ounce.

Asian Market Update

2012-01-27T15:40:00.000+05:30

NZ reports trade surplus; Yen continues to strengthen

Economic Data

(NZ) NEW ZEALAND DEC TRADE BALANCE (NZ$): +338M V -50ME (1st surplus in 5-months)
(JP) JAPAN DEC RETAIL TRADE M/M: 0.3% V 0.4%E; Y/Y: 2.5% V 2.1%E (16-month high); LARGE RETAILERS' SALES Y/Y: % V -0.6%E
(JP) JAPAN DEC NATIONAL CPI Y/Y: -0.2% V -0.2%E; CORE Y/Y: -0.1% V -0.1%E; JAPAN JAN TOKYO CPI Y/Y: -0.3% V -0.4%E; CORE Y/Y: -0.4% V -0.3%E
(KR) SOUTH KOREA JAN CONSUMER CONFIDENCE: 98 V 99 PRIOR
(KS) SOUTH KOREA FEB BUSINESS SURVEY - MANUFACTURING: 81 V 79 PRIOR; NON-MANUFACTURING: 79 V 79 PRIOR
(SG) SINGAPORE Q4 URA PRIVATE HOME PRICES Q/Q: +0.2% V 1.3% PRIOR
(JP) JAPAN BOJ DEC 20-21 BOARD MEETING MINUTES
(TH) THAILAND DEC INDUSTRIAL PRODUCTION Y/Y: -25.8% V -28.0%E

Markets Snapshot (as of 05:30GMT)

Nikkei225 -0.3%
S&P/ASX +0.4%
Kospi +0.1%
Taiwan Taiex closed
Singapore Straits Times -0.1%
Shanghai Composite closed
Hang Seng -0.1%
S&P Futures -0.3% at 1,312
Feb Gold -0.5% at $1,718/oz
March Crude +0.1% at $99.77

Overview/Top Headlines

Markets were mixed and cautious in the final trading day of the week, US jobless benefit claims rose last week while durable goods beat estimates in December. Markets are also waiting for the release of Q4 GDP from the US. A drop in USD/JPY tested ¥76.90; yen crosses sold into the Tokyo fix but regained back towards US session levels. This strength weighed on exporting names and could trigger repatriation. Japan PM Noda tried to verbally deter the strength calling for "bold" action to stem the yen rise.

Commodities futures were all lower, silver and copper both falling 0.7%, wheat lost 1% while corn shed $2.20. Shares of NEC fell over 7.5% after reporting after the close on Thursday, NEC also said it would have to lay off 10,000 positions and forecasting its 4th consecutive yearly loss. Some attention was returned to the situation in Greece, it was again reported that the sides were close to an agreement but no new details were released. Euro was weaker through most of the session as was the Swissie.

RBNZ Gov Bollard talking after the December trade balance numbers said that the latest rate decision assumes a delay in Christchurch rebuild with a pick up in 2013; Market does not expect rate increase for a year. In the Q&A went on to say there is a 2012 GDP target of 2-3%; Growth expectations have not changed much.

Bank of Japan in their December 20-21st meeting minutes were mostly in agreement that the broader part of the EU economy remains sluggish, including Germany. One sees merit of high yen for domestic demand oriented firms in Japan. Some thought, the latest expansion of asset buying has been effective and there was a need to continue corp bond buying even though there was under subscription.

Speakers/Geopolitical/In the press

(KR) South Korea Govt and Bank of Korea (BoK): Need to redouble efforts to enter new markets as demand from Southeast Asia, China and developed countries for the country's exports is expected to fall
(JP) Japan Fin Min Azumi: MoF staff looking at the trade deficit number to determine if it is temporary
(ID) Indonesia Central Bank Gov: Sees Jan CPI 0.6-0.7% m/m and 3.5% y/y; Sees 2012 CPI at 5.2-5.5% y/y if fuel subsidies are imposed
USD/MYR: (MY) Former Malaysia PM Mahathir Mohammad said the world's biggest economies could return to a Bretton Woods-style currency system due to quantitative easing measures by major central banks - US financial press

Equities

Samsung Electronics, 005930.KR: Reports Q4 Net KRW4.0T, Op Profit KRW5.3T v KRW5.2Te, Rev KRW47.3T v KRW47Te
WPL.AU: Started taking indicative bids for a large fraction of its 50% stake in the Browse gas project; Could exceed A$1.0B for the stake - The Australian
DCM: Reports 9-month Net ¥395B v ¥443.9B y/y, Op Profit ¥743.8B v ¥758.5B y/y; Rev ¥3.17T v ¥3.2T y/y
HMC: Reports 2011 global vehicles sales -20.2% y/y to 2.9M units
TM: Reports 2011 global production -9.1% y/y to 6.9M units
NSANY: Reports 2011 global output +14.3% y/y to 4.6M
Kia Motors, 000270.KR: Reports FY11 Net profit KRW3.5T v KRW2.3T y/y; Op profit KRW3.5T v KRW1.7T y/y; Rev KRW43.2T v KRW23.3T y/y
LPL: Reports FY11 Net loss KRW991B v loss KRW842Be; Op loss KRW1.25T v loss KRW910Me; Rev KRW23.5T v KRW24Te

US Equities

SBUX: Reports Q1 $0.50 v $0.49e, R$3.44B v $3.3Be; Raises FY12 $1.78-1.82 v $1.83e, Affirms Rev +10%; Q1 non gaap op margin 16.2% v 17.0% y/y; margin contraction was due to higher commodity costs; -2.1% afterhours
JNPR: Reports Q4 $0.28 v $0.28e, R$1.12B v $1.1Be; Guides Q1 $0.11-0.14 v $0.26e, R$960-990B v $1.1Be; -8.1% afterhours
RVBD: Reports Q4 $0.25 v $0.24e, R$204M v $201Me; Guides Q1 $0.19-0.20 v $0.25e, R$183-187M v $197Me - conf call; -13.8% afterhours
RHI: Reports Q4 $0.30 v $0.31e, R$973M v $986Me; -3.9% afterhours
DV: Reports Q2 $0.85 (ex items) v $1.00e, R$524M v $536Me; -8.7% afterhours
AMGN: Reports Q4 $1.21 v $1.22e, R$3.97B v $3.9Be; +1.0% afterhours
KLAC: Reports Q2 $0.72 v $0.66e, R $642M v $631Me; Guides Q3 $1.00-1.18 v $0.82e, R$770-830M v $684Me; +3.7% afterhours

FX/Fixed Income/Commodities

PKX: Considering lowering the capacity of planned mill in India from 13M ton/year to 8M ton/year
GLD: SPDR Gold Trust ETF daily holdings rise by 1.5 tons to 1,261.1 tons (highest since 1,267.9 on Dec 21st)

Profit Taking Halts Rally

2012-01-27T15:36:00.000+05:30

U.S. Dollar Trading (USD) stocks rallied in Europe but some weak US housing data prompting a reversal in the New York session on profit taking across the markets. December New Home Sales fell -2.2% vs. a 2.3% forecast. The weekly jobless claims came in near forecasts at 377k vs. 370k expected. In US stocks, DJIA -22 points closing at 12734, S&P -7 points closing at 1318 and NASDAQ -13 points closing at 2805. Looking ahead, Q4 GDP forecast at 3% vs. 1.8% previously. January Consumer Sentiment forecast at 74.1 vs. 74 previously.

The Euro (EUR) the EUR/USD moved to the 1.3180 resistance level in Europe overnight buoyed higher by reports of some progress in the Greece debt deal negotiations and the large rally in US stocks the post FOMC meeting. Profit taking hit during the US session and the major retreated back to 1.3100 support. Looking ahead, ECB President Draghi speaks.

The Japanese Yen (JPY) the USD/JPY continued to retreat in the risk off environment overnight with Y77.50 support giving way and the major sliding to Y77.30. EUR/JPY topped out above Y102 before falling back under Y101.50. AUD/JPY performed well in Europe with the market moving to Y82.75 highs before finding support at Y82 in Asia this morning. UPDATE January CPI at -0.4% vs. -0.3%.

The Sterling (GBP) Cable enjoyed new highs above 1.5700 but came under pressure after weaker than expected December CBI Retail Sales data showed a slump to -22 vs. +6 in previously. The weakness in the consumer outlook is making the UK recovery outlook more uncertain going forward. EUR/GBP rallied to month highs on the weak data but reversed with the EUR/USD back to 0.8350 support.

Australian Dollar (AUD) the AUD/USD made an attempt at the 1.0700 key resistance before reversing back to lower 1.0600 region in the US session. The Asia session was very quiet with the Chinese markets still away on New Year holidays and the Australian market closed for Australia Day celebrations. Support is seen at 1.0580 previous resistance.

Oil & Gold (XAU) Gold dipped towards $1700 before rallying to $1730 fresh highs in the US session. Oil broke above $100 but a sharp rally to $101 was reversed back below $100 by the end of the trading session.

Daily Financial Market Outlook

2012-01-27T15:34:00.000+05:30

Equity markets were mixed yesterday after the FOMC's unexpected dovish statement – notably that the Federal funds rate is likely to remain unchanged at least through to late 2014, versus the previous guidance of stability in interest rates at least until mid-2013. Although European stocks were up, in most cases by more than 1%. US market performance was flatter. Meanwhile, sterling, as well as emerging market currencies, appreciated against general USD weakness.

Today attention remains on the US with the release of the first estimate of Q4 GDP. There has been a noticeable improvement in US economic indicators in the final quarter of 2011. This has been broad-based, with activity, consumer and business sentiment and labour market data general ly printing stronger than expectations. And notwithstanding this week's softer house sales data, the housing market has also improved. Reflecting this, annualised Q4 GDP growth is predicted to be slightly above 3% in the final quarter of 2011, up from 1.8% in Q3 and the fastest since Q2 2010.

However, a key upward contribution in Q4 will come from a rebound in inventories. This is unlikely to be repeated in H1 2012, indicating a slower pace of expansion ahead. Nevertheless, we have raised our forecast for US 2012 GDP growth to 2.6%, from 2.2% previously. We believe the main downside risk to the outlook comes from an intensification of tensions in the euro area which could damage returning consumer and business confidence. A stronger-than-expected rebound in business and residential investment is the chief upside risk, reflecting potentially strong pent up demand.

Stronger US GDP growth forecast for Q4 2011

The Japanese Consumer Prices Fell For The Third Month

2012-01-27T15:32:00.000+05:30

The Japanese consumer prices index fell for the third consecutive month, where the nation's exports weakened as a result for the ongoing yen's appreciation that contributed in interrupting the nation's economic rebound from March's earthquake.

As, the Japanese national annualized CPI for December rose to -0.2%, compared with the prior reading of 0.5%, yet it came in line with expectations of -0.2.

Also, the Japanese annual CPI excluding food and energy for December remained unchanged at -1.1%, as it came in line with both of the prior and expectation reading of -1.1%.

On the other hand, the Japanese annualized CPI excluding fresh food for December rose to -0.1%, compared with the prior reading of -0.2%, yet it came in line with expectations of -0.1.

Additionally, sales of winter clothing and cars helped the Japanese retail sales to rebound, as it rose 2.5% in December from a year earlier of 2.3%, the climb was greater than expectations of 2.1%.

Moreover, the unceasing yen's appreciation along with slowdown in global growth are weakening the nation's exports, eroding corporate profits and making it more difficult for the world's third-largest economy to recover from the deflation.

Earlier this week the Bank of Japan governor Masaaki Shirakawa and his policy-board members lowered their economic forecast for 2012 to 2% from October's estimates of 2.2%, also the BoJ maintained its projection for consumer prices to rise 0.1%.

On the other hand, the Bank of Japan kept its asset-buying fund at 20 trillion yen ($260 billion), and its credit-lending program at 35 trillion yen to sustain the companies' growth, yet it expects that the economy will recover slowly, along with keeping the benchmark interest rate in line with forecasts, where the BoJ held it in a range of zero to 0.10%.

Moving to the nation's currency, as the USD/JPY pair is showing a huge fluctuation directly after the release of the CPI figures, where it's currently trading around the level of 76.34, after it recorded its highest price at 77.48 and lowest price at 77.25.

Forex Exchange Morning Report

2012-01-27T15:24:00.000+05:30

Market wrap

Sentiment was mixed, a London-session rally reversed in NY. Apart from the positive residual effects of the earlier dovish FOMC result, there was a story from Greek newspaper Ethnos that private sector bondholders had revised their debt-swap offer from a coupon above 4.0% to a more palatable 3.75%. Also helping was a good Italian bond auction and strong German consumer confidence. Sentiment turned lower in NY after some weak data for new home sales and leading indicators. The S&P500 shed 0.8% after making a six-month high at the NY open to be currently down 0.2%. The CRB commodities index is 0.5% higher, oil +1.3% and copper +1.9%. Global funding pressures continued to wane, US 3mth Libor extending a glacial drift lower since 5 January and down 0.3bp to 0.553%. US 10yr treasury yields slipped from 1.98% in London to 1.93% in NY. The Italian 10yr yield fell 18bp but Portugal's remained under pressure (+20bp) and made a fresh high.

The US dollar index slipped in London and then consolidated. EUR rose in London from 1.3100 to 1.3184 but slipped to 1.3140 in NY. USD/JPY fell from 77.70 to 77.29. AUD rose from 1.0600 to 1.0688 - a fresh three-month high - and then fell to 1.0630. NZD rose from 0.8167 to 0.8236 - also a three-month high - and then fell to 0.8200. AUD/NZD traced a sideways range of 1.2950-1.2990.

Economic wrap

US Chicago Fed national activity index rose to 0.17 in Dec compared to a fall of 0.46 in Nov (downwardly revised from -0.37). The rise in the index was mainly driven by production (+0.24) and employment-related (+0.22) indicators. Consumption and housing indicators were down by 0.29. The sale, orders and inventory category was up 0.01 in Dec.

Orders for US durable goods were positive for the third month in a row up 3% in Dec compared to an upwardly revised increase of 4.3% in Nov. The rise in Dec was, as in Nov, led by nondefense aircraft orders which were up 18.9%. Excluding transport, orders rose 2.1% in Dec compared to an increase of only 0.5% in Nov.

US initial jobless claims rose to 377K the week ending 21st Jan from an upwardly revised 356K. Claims have been volatile in recent weeks due to holidays but smoothing via the four-week moving average shows a continued modest improvement from 380k to 377.5K.

US leading index rose 0.3% in Dec, following a 0.2% rise in Nov (revised from 0.5%). The increase of the index was mostly led by the spread between short- and long-term interest rates, improvement in claims and gains in the factory workweek.

US new home sales were down by 2.2% in Dec after a rise of 2.3% in Nov (upwardly revised from 1.6%). The absolute sales fell for the first time in four months. The fall combined with the 3.5% decline in pending home sales may suggest early signs that the recent stability in the housing market may be faltering.

German consumer confidence rose to 5.9 in Feb from an upwardly revised 5.7 in Jan according to the GfK survey. This fifth consecutive increase and 10-month high was driven by a two-decade low unemployment rate and an improvement in consumer spending despite the ongoing travails of the wider Eurozone. The increase confirms the improvements in other German leading indicators such as the IFO yesterday and the PMI's/ZEW previously.

French consumer confidence rose slightly in Jan to 81 from a low of 80 and still hovering close to a three-year low. Business confidence fell to -12 in Jan, the third consecutive fall since the 10-year high of 28 in Apr 2011.

UK CBI retail sales were down to -22 in Jan from +9. Expected sales were -10, implying a further decline in consumer spending next month. After the negative GDP figure yesterday and another tick higher in the ILO unemployment, the case for further QE at next month's MPC meeting continues to build.

Market outlook

AUD/USD and NZD/USD outlook next 24 hours: The Australian data calendar is empty but NZ has the trade balance, government accounts, and RBNZ Governor Bollard's speech to watch for. AUD's upward trend remains intact, the next upside target 1.0750 (27 Oct high). NZD's upward also remains intact, resistance nearby at 0.8243 and an overbought condition developing possible early warnings the rally may be ripe.

Euro Softer As There Is No News Out Of Athens

2012-01-27T15:21:00.000+05:30

Sentiment deteriorated as Greek debt talks continued with no new developments to announce and after softer U.S. labor and housing data. The IIF left markets with little information to digest other than that 'some progress' was made in Athens today and that talks will resume tomorrow. The dollar started the session significantly lower and managed to regain some of its losses as traders took profit ahead of key technical levels. Despite a late day rebound, the US dollar remained softer against most of the majors. EUR/USD stalled ahead of the daily ichimoku cloud base and 38.2% Fibonacci retracement level (of the decline from Oct. highs to Jan. lows) which comes in above the 1.32 figure. The pair saw session highs of nearly 1.3180/85 before correcting lower to current levels of around 1.31.

Economic data released this morning came in mixed with a disappointing rise in weekly initial claims to 377K from the prior 356K (cons. 370K). December leading indicators came in lower than expected at 0.4% (cons. 0.7% prior 0.2%) and new home sales in December unexpectedly fell by -2.2% to 307K from the previous 314K (cons. 321K). Positive data included better than expected durable goods orders which increase 3.0% (cons. 2.0%) and the Chicago Fed national activity index which was surprised with a positive reading in December of +0.17 from the prior -0.46 (cons. -0.12).

U.S. equities reversed earlier gains as sentiment declined with the DJIA falling to close the day lower by around -0.18% while the S&P 500 finished the session to the downside by -0.57%. Commodities continued to outperform on the back of a weaker dollar with gold, silver and oil currently higher by +0.55%, +0.61% and +0.37% respectively. WTI crude spent most of the session above the 100 level but has since declined below the daily Tenkan line to current levels of around 99.80. UST yields remained under pressure after yesterday's FOMC meeting and 10-year yields shed about 5.8bps to around 1.936% at time of writing.
Due out shortly are New Zealand trade balance figures which are expected to show a narrowing deficit to -50M in Dec. from the prior -308M with exports expected to climb to 4.11B from 3.91B while imports are forecast to decline to about 4.10B from the previous 4.22B. The kiwi (NZD/USD) has continued its ascent and approached October highs of just below the 0.8250 level. The trade balance figures will be watched closely as RBNZ Governor Bollard noted yesterday that currency appreciation is reducing exporter returns. Also due out of the Asia/Pacific session are Japan's national (Dec.) and Tokyo (Jan.) CPI figures and retail trade numbers for December. The Bank of Japan also publishes the minutes of its Dec. 20-21 board meeting.

Asia Session: European Finance Ministers Spoil The Euro's Party

2012-01-24T13:55:00.002+05:30

Greece was the focus of talks in Brussels, where EU finance ministers voiced their concerns about an offer made by private sector holders of Greek debt. Luxemburg's PM Junker offered the most down-cast assessment, when he stated that Greece's program is off track, also saying that coupon's on bonds maturing before 2020 should be well below 3.5% and below 4% over the full 30 year period.

Currently, the IIF is proposing an average coupon rate of 4%, which they say is the least they can accept if they are to write-down the nominal value of their debt by 50%. However, they will have to accept a lower coupon rate if they want to receive the next round of austerity measures before Athens has to re-finance a large bond on March 20, which if not met would constitute a default by Greece and could be catastrophic for risk assets globally.

Furthermore, Dutch Finance Minister Jager stated that the current plan presented by the bond holders, represented by the IIF, would cause Greece's debt to remain above targeted levels. A key concession for any austerity package is a debt reduction plan that brings Greece's debt to GDP to a more sustainable level, which is deemed to be 120% or below in 2020 and involves a debt reduction of around EUR 100 billion.

Eurozone finance ministers also discussed tighter fiscal controls for European nations and steps to finalise the ESM. It is now confirmed that the rescue fund will be brought forward to July, and the Financial Times reported that Germany has done a black-flip on beefing up the Eurozone rescue funds, stating that they would support a plan allowing the EFSF and ESM to operate conjointly if new fiscal reforms were part of the plan, but the reports were denied by one of her spokesmen.

The BOJ released their growth forecasts for 2012 /2013, which were largely unchanged at 2.0% for FY2012 and 1.6% for FY2013 (previous forecasts were 2.2% and 1.5% respectively). At the same time, the bank stressed that the European debt crisis is holding back global growth, this is clearly not surprising but it does highlight how nervous policy makers are in Asia when it come to the situation in Europe. Earlier, IMF Chief Lagarde urged the 17 Eurozone countries to deal with the crisis that is threatening to drag the world in a 1930's style depression.

Following the meeting the Brussels, risk assets and the euro managed to avoid immediate sell-offs. However, as the situation sunk in, the euro shot below 1.3000 and AUD/USD was pushed below 1.0500. So, it looks like the short-term future of risk assets will remain interlinked with the ability of Greece to secure its next austerity package. Whilst price action doesn't look like a Greek default has been priced in, traders are concerned about the slow progress of Greece and the IIF in developing a plan that will allow Athens to remain above the water line.

Ahead in Europe, we have the release of French, German and Eurezone PMI figures at 19:00, 19:30 and 20:00 AEST respectively.

Euro Breaks Back Above 1.3000 On Positive Greece News

2012-01-24T13:54:00.002+05:30

U.S. Dollar Trading (USD) news that Greece had reached an agreement with bond holders helped stoke a further recovery in the EUR/USD and kept the USD under pressure through the European and US session. Stocks did little however with the recent rally running out of steam. In US stocks, DJIA -11 points closing at 12708, S&P +1 points closing at 1316 and NASDAQ -2 points closing at 2784. Looking ahead, Little US data but traders are focusing on the FED’s FOMC meeting Wednesday and any possibility of a change in monetary policy.

The Euro (EUR) the EUR/USD broke above 1.3000 as the short squeeze continued until finding resistance at 1.3050. The positive Greece news has been somewhat hampered in the Asia session Tuesday as comments from some EU officials they are not happy with the terms the private creditors have asked for. Looking ahead, January Manufacturing PMI forecast at 47.4 vs. 46.9. Services PMI forecast at 49.1 vs. 48.8 previously. Also, November Industrial Orders forecast at -2.1% vs. 1.8% previously.

The Japanese Yen (JPY) the USD/JPY was very contained around the Y77 level with action kept to the crosses with EUR/JPY breaking above Y100 and AUD/JPY Y81. The outlook for more Yen weakness is very possible if stocks continue to rally and EUR/JPY holds above Y100. UPDATE BOJ hold at 0.1% as widely expected.

The Sterling (GBP) Cable move to 1.5600 but failed to break above with EUR/GBP buying capping the Cable gains. The outlook is bullish short term but as always we looking to development in the Eurozone for sentiment. Some are looking for the BOE to increase the Asset purchase program at February’s interest rate meeting. Looking ahead, December Public Sector Debt forecast at 12.4bn vs. 15.2bn previously.

Australian Dollar (AUD) the AUD/USD extended the uptrend above 1.0500 and pushing to resistance near 1.0560 before easing on profit taking. The outlook is very strong for the Aussie which is only 5 cents off all-time highs in the middle of a debt crisis. Improving Chinese or US data should support going forward. Looking ahead, Q4 CPI on Wednesday forecast at 0.2% vs. 0.6% previously.

Oil & Gold (XAU) Gold also moved high breaking above $1670 with the Euro led weak USD. Oil Rebounded to test $100 with improving risk appetite supporting.

Greek PSI Offer Rejected, But Deadline Extended To February

2012-01-24T13:53:00.003+05:30

O/N BULLETS

Eurozone finance ministers reject Greek PSI offer – deadline set for February 13
EZ finance ministers agree on text of ESM treaty
Posen says MPC right to consider more QE

USD

While the catalyst for USD weakness yesterday may have been growing optimism about the Greek PSI deal, the most notable FX development was USD weakness rather than EUR strength. We suspect this is mainly a result of positioning and USD sensitivity to risk positive developments. The Eurozone developments are likely to remain the main focus today, but will continue to determine USD direction in the way they impinge on risk appetite. The USD could still have significant downside on risk positive news (see spotlight below), but there seems little chance of major progress today.

EUR

In spite of initial concerns about the Greek PSI deal yesterday, EUR weakness was initially quite modest, suggesting that even though the outcome isn’t ideal the worst of EUR weakness may have been seen for the short run as long as there are no major surprises. Nevertheless, the failure to agree suggests downside risks today. The PMI data this morning seem likely to underpin the talk of stabilisation heard from Draghi and euro area finance ministers of late, even though the data from Spain and comments on German growth yesterday underlined the likely weakness of Q4 growth.

GBP

UK PSNB numbers will be a focus this morning, and the risks may be slightly towards a smaller deficit than expected judging by recent trends. This may limit the upside scope for EUR/GBP on any positive EUR developments, and resistance at 0.8380 seems likely to hold in the absence of surprising EUR positive news. GBP/USD may be more attractive than EUR/USD if risk positive conditions persist.

CAD, NOK

So far the EU decision to impose sanctions on Iran has had limited impact on the oil price, in large part because they will not be introduced until July 1. But the combination of this, the Saudi revision of their oil price target to $100 p/b and the more positive risk tone suggest there is little downside to the oil price in the short run. While correlation has been very limited of late, the prospect of a firmer oil price may provide some relative support for the NOK and CAD going forward, given that they have underperformed other risk positive currencies of late.

Spotlight – EUR/USD has substantial upside risks on position squaring – The EUR has rallied over the last week as short positioning has been steadily reduced, but the potential for EUR gains on position squaring should not be underestimated. The chart below suggests that a full squaring of EUR short positions could easily lead to a rise to 1.40 or above in EUR/USD. Of course, such a squaring of positions is far from certain to happen given continuing concerns about euro zone debt issues, but from a bigger picture perspective there is no significant difference in yield attraction between the USD and EUR and EUR/USD is close to longer term fair value near 1.30, so there is no major reason to be holding USD over euros in more normal circumstances

Asian Market Update

2012-01-24T13:53:00.000+05:30

Greek PSI offer rejected, Japan fiscal and economic outlook cloudy, IMF to Aussie banks - raise your capital

Economic Data

(JP) BANK OF JAPAN (BOJ) LEAVES TARGET RATE RANGE UNCHANGED BETWEEN 0.0% TO 0.10% AS EXPECTED; LOWERS GDP FORECASTS AND ECONOMIC ASSESSMENT (3rd consecutive cut)
North America Semi Equipment Industry DEC Sales book to bill ratio: 0.88 v 0.83 (3rd consecutive monthly increase)
(AU) AUSTRALIA NOV CONFERENCE BOARD LEADING INDEX: -0.3% V 0.5% PRIOR (5-month low)
(IN) INDIA CENTRAL BANK (RBI) CUTS CASH RESERVE RATIO (CRR) BY 50BPS to 5.50% (not expected); LEAVES REPO RATE UNCHANGED AT 8.50%, AS EXPECTED

Markets Snapshot (as of 05:30GMT)

Nikkei225 +0.2%
S&P/ASX unchanged
Kospi closed
Taiwan Taiex closed
Singapore Straits Times Index closed
Shanghai Composite closed
Hang Seng closed
S&P Futures -0.3 at 1,307
Feb Gold -0.2% at $1,674/oz
March Crude +0.2% at $99.81

Overview/Top Headlines

For the second consecutive day only Australia and Japan were open due to the New Year's celebrations, equities markets were decidedly more positive today with hopes that a resolution may be reached for Greece. EU's Juncker said that the PSI must achieve 120% debt to GDP target in 2020 and that the Greek program is off track, action needs to be taken before there is a new program. Ministers rejected an offer out of the PSI, made from the private bondholders on how to restructure Greek debt, ministers said to be pushing the group to agree to receive less than 4% on the restructured debt.

EU Fin Mins also talked about stronger budget rules for EU members and got a few steps closer on finalizing the structure for the permanent EU bailout fund. France Fin Min Baroin said that there was good progress made on the ESM treaty, expects it to be signed Jan 30th. Agreement said to say the ESM can make loans without unanimous govt backing and will only require support of 85% of eurozone governments.
EUR/USD came off its 3 week high, staying mostly unchanged for the Asian session. AUD/USD lost 30 pips to $1.0493. The other major currencies were little changed. Brent crude held around $110.60 as Iran sanctions are agreed upon around the globe including the EU. US Treasury yields helped to push Japan's 10-yr JGB yield to 1%, the highest level since mid-Dec.

As expected the Bank of Japan left its target rate unchanged. It cut its economic assessment for the 3rd consecutive time, saying "economic activity has been more or less flat, mainly due to effects of slowdown in overseas economy and appreciation of JPY." The BoJ as promised, also updated GDP forecasts cutting FY11/12 to -0.4% from +0.3% and FY12/13 to +2% from +2.2% and raising FY13/14. CPI forecast for FY11/12 was cut to -0.1% from 0.0% prior, other years were confirmed. Also, Japan Cabinet Office guides FY15 primary deficit of 3.6% of GDP; Will miss budget surplus in FY20 even with 10% sales tax, deficit will be 3.1% of GDP. This puts Japan's sovereign rating in danger of a downgrade, outlook is already negative.
Even though the IMF report on Australia is not expected until June, the IMF has instructed Australia's biggest banks to increase their capital. IMF said that the banks may not be able to withstand dual shock of residential property downturn and losses on corporate lending. The IMF noted the main vulnerabilities of the Australian banking sector was their exposure to highly indebted households through residential mortgage lending, together with their large levels of short-term offshore borrowing.

Speakers/Geopolitical/In the press

(JP) Japan Econ Min Furukawa: Declining trade surplus in Japan confirms that domestic industry is being hollowed out; Japan to face further trade deficit if JPY remains strong - Nikkei News
(CN) China Central Bank (PBoC) Gov Zhou: Chinese companies need to rely less on S&P, Fitch and Moody's for credit assessments and do more of their own due diligence - China Newsweek
(AU) Australia Manufacturing Min Carr rejects suggestions that car subsidies should be wound back, calling the industry a foundation stone ton Australia manufacturing - The Australian
(PT) US Financial press comments that a growing number of analysts, economists and politicians worry that Portugal will need a second bailout in 2013 when it has €9B in debt coming due

Equities

LYC.AU: Announces new cornerstone investor; Raising $225M through convertible bond issuance
9501.JP: Nippon Life Insurance Co., Dai-ichi Life Insurance Co, and two other insurers may offer TEPCO ¥100B in syndicated loans as early as April - Nikkei News
NCM.AU: Reports Q2 gold output 579K vs 587.3K q/q, -20% y/y; Copper 18.2K tons vs 19.2K q/q

US Equities

VMW: Reports Q4 $0.62 v $0.60e, R$1.06B v $1.0Be; Guides initial FY12 Rev $4.48-4.6B v $4.5Be; +4.7% afterhours
TXN: Reports Q4 $0.25 (incl $0.23 in charges) v $0.39e, R$3.42B v $3.3Be; CFO: Saw a resumption of demand across a broad range of products in the quarter; +3.6% afterhours
STM: Reports Q4 -$0.01 v -$0.03e, R$2.19B v $2.2Be; Guides Q1 Rev -10% to -4% q/q (implies $1.97-2.10B v $2.1Be); +1.9% afterhours
WDC: Reports Q2 $1.51(adj) v $0.71e, R$1.99B v $1.8Be; Guides Q3 $1.15-1.45 (ex items) v $0.91e, R$2.0-2.15B v $2.0Be; +5.2% afterhours
PLCM: Reports Q4 $0.41 v $0.29e, R$407.0M v $401Me; +14.0% afterhours
CSX: Reports Q4 $0.43 v $0.44e, R$2.95B v $3.0Be; -3.0% afterhours
CR: Reports Q4 $0.88 v $0.90e, R$632M v $650Me; Guides initial FY12 $3.75-3.95 v $3.86e, Rev +5-6% (implies $2.67-2.70B v $2.7Be); -0.2% afterhours

FX/Fixed Income/Commodities

(CN) China Ministry of Commerce (MOFCOM): Domestic pork prices +3.0% in Jan 11th-20th period - financial press
FCG.NZ: New Zealand Commerce Commission announces plans for annual monitoring of milk prices in New Zealand - Dominion Post
GLD: SPDR Gold Trust ETF daily holdings fall by 5.2 tons to 1,250.5 tons (lowest since 1,245.1 on Nov 11th)

Asia Session: European Finance Ministers Spoil The Euro's Party

2012-01-24T12:17:00.002+05:30

Daily Financial Market Outlook

2012-01-24T11:24:00.002+05:30

Discussions over tackling the euro area's debt crisis are expected to remain firmly on the table when EU finance ministers meet in Brussels this morning. Today's gathering comes hot on the heels of yesterday's euro area finance ministers meeting and looks to provide some clarity over the Greek bailout package ahead of next week's EU leaders summit. In terms of economic news, with expectations that euro area GDP contracted in Q4, market focus is now on economic activity in Q1 and the prospect of a euro area wide recession. Although, we look for both the 'flash' manufacturing and services PMIs to have improved in January to 47.5 (prev 46.9) and 49.2 (prev 48.8) respectively - they are expected to remain below 50.

The impact of the slowdown in Europe and its effect on the domestic economy is yet to have a visible impact on the UK public finances. In December, we forecast PSNBX to total £14.4bn. The underlying deficit is thus likely to narrow by £1.5bn on the previous year, broadly in line with the average improvement seen this financial year. This suggests the finances may undershoot the revised official PSNB target of £127bn - no mean feat against a background of weakening economic activity. This reflects a marked slowing in central government spending growth, which has slowed to around 1% on the year. The deficit improvement will provide ongoing support to gilts 'safe-haven' status. However, a fresh recession is likely to result in disappointing receipts growth as we move into 2012-13. Ahead of tomorrow's MPC minutes, Governor King will speak in Brighton this evening.

Improvement in PSNBX in 2011-12 (yoy)

The Bank Of Japan Cut Its Growth Outlook For 2012

2012-01-24T11:23:00.003+05:30

Bank of Japan (BOJ) cuts its growth outlook for the year starting in next April, along with keeping its zero-interest rate policy as the European sovereign debt crisis reduced the global demand, which also keeps the yen strong.

As, the BoJ's Governor Masaaki Shirakawa and his policy-board members lowered their economic forecast for 2012 to 2% from October's estimate of 2.2%, also the BoJ maintained its projection for consumer prices to rise 0.1%.

The BOJ concerns are growing amid that the European debt crisis that will slow exports and keep the yen near a record high and its ongoing appreciation along with cutting into corporate profits.

The BoJ's Governor said that the European situation is considered the biggest danger because it's threatening the global economy and dragging it into a slowdown, as speculations indicated that the BoJ's governor may not take further easing steps until the turmoil is resolved.

Key Week For GBP With BOE Minutes & 4Q GDP

2012-01-24T11:23:00.000+05:30

This week will be a key one for GBP as we have 2 very important fundamental risk events – the Bank of England meeting minutes as well as the advanced version of 4th quarter GDP.

BOE Minutes To Be Parsed for Clues Around Further QE
The Bank of England meeting minutes will be crucial to determine the expectation for the BOE in its subsequent meeting in February and March.

The asset purchase program which was expanded by £75 billion in October to £275 billion is expected to be completed in early February. Therefore investors are keenly watching to see if there any hints about a possible further round of QE to be announced at these next two meetings.

With the economy struggling and prospects of the euro zone sovereign debt crisis deteriorating the market had for the most part priced in further QE from the BOE coming into the beginning of the year. But, with the ECB's recent actions including the LTRO helping to stem the slide in the sovereign debt crisis into a financial banking crisis the BOE may be thinking about limiting its aggressive loosening of monetary policy via its QE program in order to assess incoming economic data.

The economic situation is not necessarily improved as the unemployment rate continues to rise and there's expectation that economy contracted in the 4th quarter – which we address below.

If the bank offers a strong endorsement of further quantitative easing that would pressure the pound against key rivals – as it dilutes the currency – and in fact we've already seen the pound weaker against the euro and higher yielders like the Australian dollar to start the week.

Here's a look at the relative scale of the key central bank's balance sheets since 2008:

4th Quarter GDP Expected to Be Grim Reading

The UK economy has been very uneven over the last year and is expected to show a contraction of 0.1% quarterly terms for the 4th quarter. This would follow a 0.6% q/q increase in the 3rd quarter, and a flat reading in the 2nd quarter

The expectation for the annual rate is for a tepid growth rate of 0.1%. With the economy still showing signs of strain, a further contraction in the 1st quarter of 2012 would mean that the economy is in a technical recession.

Last week data on retail sales help to boost some analysts expectations of a fourth quarter in which the economy actually showed some semblance of growth. Year-over-year, retail sales rose 2.6% in December, on the back of a 0.6% monthly gain

Therefore, it will be important to see exactly where the GDP data falls.
A negative reading would weigh on the GBP and likely increase the chances of more quantitative easing while a surprise to the top-side, with GDP increasing during the quarter could knock back some of the more pessimistic outlooks for the UK.

Both the BOE Minutes and 4th quarter GDP data will be released concurrently at 9:30 GMT during Wednesday's European session and will likely determine the direction of the GBP for the next few weeks until we get the BOE rate decision in early February.

Gov't Borrowing and CBI Realized Sales Can Also Help to Guide GBP

Also on tap this week will be data on net government borrowing which is important for measuring the austerity drive by the government.

If the government had to borrow more than expected that would undercut the effectiveness of the government's program while a reading that shows that the government borrowed less than expected could help bolster the government's program.

November's data helped as it showed the government borrowing less in 2010-2011 than it did in 2009-2010 during the month.

In regards to the expectations around retail sales, this week we get a look at the CBI realized sales – a leading indicator for consumer spending – which is expected to show a net 1% of retailers reporting sales better than they were a year ago in January. That would be a decline from the 9% net seen in December.
Therefore the jump in retail sales in December which we talked about earlier may be temporary and a result of steep discounts prior to the holiday shopping season. If the UK consumer retrenched again in the beginning of the 1st quarter then we can expect economic growth to remain weak.

Forex Exchange Morning Report

2012-01-24T11:21:00.003+05:30

Market wrap

Risk markets probed higher. Much of the London session was driven by reports (from Germany's FTD for example) that a broad agreement between Greece and bondholders had been reached and negotiations were now focussed on detail, such as the level of the coupon on the swapped debt. A level of 4.0% is supposedly agreeable, although the IMF troika and Germany are pressing for closer to 3.0%. The S&P500 rose to a fresh post-July high of 1322 but then fell later in the NY morning by 0.9%, and is currently down 0.2%, after Dow Jones News reported a rumour that the IMF and EU will refuse to contribute any further towards Greece's rescue. The latest on this saga is a comment from an anonymous Greek official who said a final off er will be tabled on 13 February. Other asset classes were more resilient, the CRB commodities index up 1.2%. US 10yr treasury yields are 5bp higher at 2.07%, earlier at 2.09% and breaking above a five-week range. Eurozone peripheral yields are lower, the Greek 10yr down 59bp, Portugal down 18bp and Italy down 14bp.

The US dollar index continued its downward correction, losing around 0.5%. EUR rose from 1.2892 to 1.3053 and only slipped to 1.3005 after the negative DJ report. USD/JPY gyrated in a narrow 76.87-77.08 range. AUD rose from 1.0485 to 1.0573, a 2 month high, slipping in NY to 1.0517 with US equities. NZD rose from 0.8065 to 0.8142 - also a 2 month high, and then slipped to 0.8092. AUD/NZD firmed slightly from 1.2980 to 1.3010.

Economic wrap

Canadian leading indicators declined to 0.8% in December from an upwardly revised 0.9% (previously 0.8%) in January. Eight of the ten components were positive over the month with only the stock market and furniture sales negative.

The advanced estimate for the EC Eurozone consumer confidence survey revealed a modest increase in confidence to -20.6 in January from -21.3, the first increase in six months.

French Business confidence indicator slipped to 91 in January from 94 the previous month. This was the second consecutive monthly decline in the survey having peaked at 110 in June. There were particularly notable falls in both overall (to -32) and foreign (to -26) orders. Production outlook ticked lower to -37 while own-company production declined to -6 from -1..

Market outlook

AUD/USD and NZD/USD outlook next 24 hours: The local calendars are quiet. AUD momentum remains positive, now targeting above 1.0600. NZD has a similar upward bias with trend channel resistance at 0.8135.

Asia Open: EU Finance Ministers Express Their Reservations About The PSI Deal

2012-01-24T11:21:00.000+05:30

The talk coming from Brussels is that the PSI deal is not acceptable in its current form and Luxembourg PM Juncker went as far to say that the Greek program is off track. Nevertheless, EU finance ministers have stressed that Greece's future is within the euro and EU Commissioner for Economic Affairs Rehn believes that a PSI deal will be forthcoming in the next few days. The stumbling block appears to be the coupon rate, with EU officials looking for an average rate of 4% for 30yr bonds.

The big event of the day in Asia is a BOJ meeting and the associated press conference, where the bank is expected to keep the overnight call rate unchanged. Nevertheless, the Outlook for Economic Activity and Prices is going to be released following the meeting and we expect a downward revision to both GDP and inflation forecasts for FY2011 and FY2012, but they are unlikely to be significant enough to prompt any more policy action.

Themes:

Germany is open to letting the two Eurozone rescue funds run in parallel, with a combined firepower of EUR 750 billion. This would represent a massive shift Berlin's policy, given that they have been stanchly against boosting the ESM or EFSF. However, in return German Chancellor Merkel reportedly wants Eurozone officials to sign up to rules aiming for more fiscal reform.

EU finance minister broke from a meeting in Brussels to state that the PSI deal had been rejected, but they expect a deal to be made in the next few days.

The BOJ is expected to keep the target cash rate at 0.10% during their meeting today.
Most equity markets in Asia are still closed due to New Year celebrations.

Euro Climbs Higher Amid Meeting Of EU Finance Ministers

2012-01-24T11:20:00.002+05:30

The dollar continued to slide as sentiment moved moderately higher amid the EU finance ministers meeting, ongoing discussions regarding a Greek debt deal and ahead the Fed's two-day policy meeting which begins tomorrow. Several officials have expressed their views that Greek PSI talks are progressing and nearing an end – EU's Rehn said that PSI negotiations should be concluded 'shortly', IMF head Lagarde said that she is sure delivery will come on Greek talks, Germany and France's finance ministers noted progress on Greek talks and the Greek finance ministry said that PSI talks have been 'substantive'. While EU leaders are optimistic on a deal being reached soon, Greece noted that the PSI offer is due by Feb. 13.

In other Europe news, the EZ consumer confidence for January unexpectedly rose to -20.6 from the prior -21.3 (cons. -21.4). This helped to lift the common currency which was also supported by declining sovereign yield spreads. News out of the meeting of euro area finance ministers indicated that the group agreed on the European Stability Mechanism (ESM) based on Finland's proposal. EUR traded higher against most of the majors but was slightly lower against the Scandies. EUR/USD rose above the 1.30 psychological big figure and EUR/JPY is currently above the key 100.00 level.

In the U.K., Bank of England's Posen and Tucker spoke with Adam Posen noting that downside risks are 'materially reduced'. He went on to say that the stock of QE, not the pace, is more important for stimulus and that he would voter for additional QE in February if forecasts justify it. Paul Tucker gave fewer hints on his policy stance and said that banks should reduce their reliance on rating agencies. The pound underperformed amid speculation of further easing and ahead of the release of the BoE's MPC minutes and U.K. 4Q GDP report on Wednesday which is expected to show a contraction of -0.1%. GBP/USD was rejected from the 55-day SMA around the 1.56 figure and is currently around 1.5570.

U.S. equities were choppy trading in and out of positive territory and ultimately finished the day mixed. The DJIA closed to the slightly lower by about -0.09% while the S&P 500 climbed to finish marginally higher by about +0.05% to end the session. Commodities were mostly higher on the back of a weaker dollar with the precious metals gold and silver currently higher by about +0.67% and +0.36% respectively. WTI crude is higher by +1.65% and testing the key 100 level. UST yields were mostly higher as the yield curve steepened ahead of the FOMC meeting. 10-year Treasury yields advanced about 4.2bps to nearly 2.07%.

There is relatively light economic data flow due out in the upcoming Asia/Pacific session with only the November Australia Conference Board leading index. Also of note is the IMF economic outlook which will be released tomorrow and IMF head Christine Lagarde noted today, 'we will lower growth forecasts for most parts of the world'.

Stocks Mixed Ahead Of The FOMC Meeting

2012-01-24T11:19:00.002+05:30

Asian Markets are set for a muted start to the day after US Stock closed mixed as Europe sought to tame its debt crisis and investors debated whether a three-week rally was warranted.

The S&P500 rose 0.62 points, or 0.05%, to close at 1316.00 with energies gaining and telecoms lagging. The Dow Jones Industrial Average finished 11.66 points lower, or 0.09%, at 12708.82, while the Nasdaq also slightly fell 2.53 points or 0.09%.

Stocks ended flat in quiet trading as investors continued to monitor developments in the Greek debt negotiations and ahead of the Fed’s two-day FOMC meeting this week.

The euro strengthened to an almost three-week high against the dollar as French Finance Minister Francois Baroin said negotiations between Greece and its private creditors are making “tangible progress.” The euro gained 0.8% to $1.3029.

Oil rose for the first time in four days after the European Union agreed to ban crude imports from Iran, raising concern that retaliation from the Islamic Republic may disrupt the oil supply in the Middle East. Oil for March delivery climbed $1.25 to settle at $99.58 a barrel.

Gold rose 1% on Monday to a six-week high, boosted by technical buying and as the euro rallied ahead of the outcome of a euro zone meeting on Greek debt restructuring. U.S. gold futures for February delivery rose $14.30 to settle at $1,678.30 an ounce.

Asia Session: The RBA Looks Set For Another Rate Cut

2012-01-23T13:02:00.002+05:30

The FX and equity markets were fairly flat in Asia, with liquidity suffering as a result of New Year celebrations and the resulting closure of most stock markets in the region. At the same time, investors are clearly nervous about the situation in Greece, which may have kept a few traders on the sidelines as they await confirmation from European markets.

There was only one headline data release during the session, with the 4Q Australian PPI figure coming in slightly less than expectations at +0.3% q/q (expected +0.4% q/q). A relatively high aussie dollar should have pushed up the final prices received by producers, but the relatively weak PPI figure could increase the likelihood of another rate cut on Feb 7.

Nevertheless, the RBA will be closely monitoring the CPI figure to be released on Wednesday. The data has the ability to influence the bank's decision in two ways. Firstly, a negative figure will undoubtedly add to the case for a rate cut and a figure around the consensus of 0.2% will also likely provide more scope for a cut, given the downside risk to growth. However, a significantly higher than expected figure could delay the next rate move, despite the unstable conditions offshore, which has been a hallmark reason for the RBA's recent rate cuts.

EUR managed to break back above 1.2900 on a few occasions but could not sustain itself above this level, and on the downside the pair was unwilling to penetrate 1.2850. The aussie faired a little better, but still traded in a fairly tight range around 1.0450 – 1.0494.

In equity markets, AUS200 is currently in the red by around 0.34% and JPN225 is just holding its head above the water by approximately 0.07%.

Trading during the London session will likely be dominated by sentiment surrounding Greece and the upcoming EU summit. Athens and private sector bond holders have still not agreed upon a plan, and whilst it still looks like the market is not pricing in a Greek default yet, everyday that this is drawn-out the euro could suffer. Also, with the lack of deal in Athens, the EU leaders will not be able to sign off on the next round of austerity measures; instead the focus should shift to bringing forward the EUR 500 ESM fund to July.

Greece Debt Deal In Spotlight

2012-01-23T13:01:00.002+05:30

U.S. Dollar Trading (USD) stocks continued to rally in the US Session but the Dollar gained as the Euro came under pressure with time running out for Greece to strike a deal with bondholders on the beleaguered nation's debt haircut. US housing data countered weakness in Google's stock with December Housing starts rising 5%. In US stocks, DJIA +90 points closing at 12720, S&P +1 points closing at 1315 and NASDAQ -1 points closing at 2786. Looking ahead, No data today and Chinese New Year holidays begin last all week and may affect the Asian session liquidity.

The Euro (EUR) the Euro hit day highs in late Asia but reversed in the European session with a break of 1.3000 going to require a positive outcome to the Greece debt deal negotiations still ongoing. Some news over the weekend that showed the standoff was entering the final phase saw heavy selling on Monday morning with traders unwilling to risk being long. Looking ahead, January Consumer Confidence forecast at -20 vs. -21.

The Japanese Yen (JPY) the USD/JPY remained above Y77 for most of the day but with EUR/JPY stalling at Y100 before easing on the Greece debt failure risk and profit taking on the move from Y97 to Y100 throughout the week. AUD/JPY is holding onto gains however with traders looking for higher levels now the cross is above Y80. Talk in the market about possible EUR/JPY intervention has drawn the conclusion that this is unlikely without major selling at a pace faster than we have seen so far.

The Sterling (GBP) the GBP/USD broke and closed above the 1.5500 level with EUR/GBP selling allowing the major to break its normal correlation with the Euro. December Retail Sales gained 0.6% as forecast m/m. Traders will be looking to the Greece news for whether the relief rally can continue.

Australian Dollar (AUD) was able to decouple from the Euro selling on Friday and Monday morning in Asia as the commodity currency continues to receive support after breaking higher earlier in the week. AUD/JPY is providing plenty of support as is the EUR/AUD which resumed its downtrend on Friday. Stock markets are doing very well so far in 2012 and if the trend continues the AUD/USD could retest all-time highs above 1.1000 this quarter. UPDATE Q4 PPI was at 2.9% vs. 3.0% forecast y/y.

Oil & Gold (XAU) Gold tested support below $1650 before reversing and closing just under the $1670 topside resistance. Some softer comments from Iran and the peaceful movement of US navy ships through the straight of hormuz sent Oil into a sharp slump as the risk premium of war was reversed out of the price. Support was found under $98 on Monday morning