FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Financial markets remain sleepy, although data and news flow has started to pick up.
Italy undertook two successful auctions on Tuesday, selling 179-day bills at 3.251% (vs 6.504% on Nov 25.) and 2013 bonds at 4.853% (vs 7.814% on Nov 2). A bigger test will come tomorrow when the treasury taps the market for EUR5-8 bn of 3-, 7- and 10-year bonds, although today’s successful auction bodes well.
The Swiss KOF indicator was +0.01, much lower than consensus and a further indication of deteriorating conditions inSwitzerland. In theUS, data continues to impress, Monday’s consumer confidence print came in above consensus at 64.5. OurUS economists note that the larger-than-expected gain in confidence reflected gains in both the expectations (76.4 after 66.4) and the present situation (46.7 after 38.3). Assessments of both current and expected labor market conditions also improved, signaling an improvement in the labor market. Those data also lend support to the sharp downtrend in weekly jobless claims recently. Reuters reports that President Obama will nominate Harvard economist Jeremy Stein and Jerome Powell, an investment banker and former Treasury official, to the two empty seats on the Federal Reserve’s policy-setting board of governors.
FX markets traded in tight ranges, EURUSD traded 1.3043-1.3077 and USDJPY 77.90-78.03. On Thursday, US jobless claims and Chicago PMI are due where our economists look for further evidence of an improving labour market.
EUR
Italy undertook 2 successful auctions on Tuesday, selling 179-day bills at 3.251% (vs 6.504% on Nov 25) and 2013 bonds to yield 4.853% (vs 7.814% on Nov 2). A bigger test will come today when the treasury taps the market for EUR5-8 bn of 3, 7 and 10 year bonds.
Expansion, citing unidentified people with knowledge of the matter, reported that Spanish Prime Minister Mariano Rajoy may instruct the country’s banks to cut the value of their real-estate assets by an average of 20% as part of a plan to make them declare potential losses and rebuild their credibility,
The ECB said that EUR6.225 bn was borrowed using the overnight loan facility, while EUR452.034 bn was deposited. This is another record jump in cash left overnight at ECB. Although it’s still too early to judge the effectiveness of the recent LTRO program, there is a lot of scepticism on whether the cash can or will be used by banks to put on ‘carry trades’ and load up on Eurozone government bonds.
The Swiss KOF leading indicator came in much lower than expected in December, falling to +0.01.
The ECB announced it settled only EUR0.019 bn worth of sovereign bond purchases in the week ended Friday, down from EUR3.361 bn the week before. This is the slowest pace of buying under the securities markets program since it was reactivated in early August. The total stock of bonds accumulated now stands at EUR211 bn, allowing for the maturation of some of the bonds purchased since the program began in May 2010..
JPY
November core CPI declined slightly y/y from October due to price decreases in package tours and some durable items. Our analysts note that the slightly stronger result inTokyocore CPI in Dec was due to price increases of food (ex fresh foods), transportation, and some durable goods. Applying theTokyoresult to the Dec nationwide CPI forecast, core CPI in Dec would be -0.2% y/y, meaning deflationary pressure remains. Our analysts continue to expect negative core CPI to persist until the latter half of 2012 as the GDP gap gradually closes.
November preliminary industrial production fell -2.6% m/m vs -0.8% consensus.
A Japanese MoF official was on the wires, stating that no changes inJapan’s basic FX policy, to take appropriate steps vs excessive yen rises, will continue to keep in touch with overseas counterparts.
SCHEDULE
Please visit GCI’s Economic Calendar for a schedule of market news and events.
