FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk continues to enjoy a healthy recovery as today’s Eurozone Finance Ministers look to approve Greece receiving the 6th tranche of aid today. More importantly, the details for EFSF leveraging are expected to receive the official go-ahead, though the marginal impact of these bits of ‘good news’ should be limited at best and investors will still cast a nervous eye towards this week’s bond auctions and Eurozone yields in general may not find too much respite. Our European economists have significantly lowered their 2012 growth forecasts to -0.7% y/y from +0.2% y/y previously, reflecting heightened concerns about Europe. Knock-on effects to other economies means UBS now forecasts 2012 global growth forecast at only +2.7% y/y (prev. 3.1%).
A French newspaper also reported that S&P may change its outlook for France to negative within the next 10 days, and the timing would be particularly bad but may add to the urgency for Eurozone leaders to reach a comprehensive accord at the upcoming summit. In other news, Fitch affirmed the US rating at AAA, but lowered the outlook to negative from stable. Both the action and the timing had been previously signaled by Fitch and there was no FX reaction. Italy is due to tap the market for up to EUR8bn today. In the UK, Chancellor Osborne is expected give his autumn budget statement and the OBR will release economic and fiscal forecasts. Overnight EURUSD traded 1.3287-1.3373 and USDJPY 77.90-78.27.
EUR
A spokesman for the German government said that Germany and France are working together on proposals for concrete and limited EU treaty changes. The German Ministry of Finance denied that there are plans for Eurozone bond issuance amongst AAA countries only. This relates to news reported over the weekend that the six AAA rated Eurozone countries are considering issuing joint bonds. Austrian Finance Minister Fekter also said he ‘sees no sense’ in ‘elite bonds’ for Eurozone members.
EUR 8.58 bn worth of ECB purchases were settled last week under the Securities Markets Program, up from EUR 7.99 bn the week before. Bank of England Governor King said deleveraging by Eurozone banks is leading to early signs of a Eurozone credit crunch.
Monday’s auction of Italian 2023 BTPEI yielded 7.30%. The Belgian auction was well received however with strong bid-to covers across the 4 bonds issued. The bonds had rallied ahead of the auction and continued to perform well afterwards. Italy is due to auction up to EUR 8 bn worth of BTPs on Tuesday.
La Tribune reported that S&P may change France‘s outlook to negative within 10 days.
According to media reports, EU Economics Commissioner Rehn is to tell Italy that fiscal measures of EUR11bn are needed ‘immediately’ and balancing the 2013 budget is a key prerequisite to regain credibility and improve media-term growth prospects.
Eurozone finance ministers are scheduled to meet today. A likely outcome is that the disbursement of Greece‘s long-awaited sixth tranche may be approved in principle.
Our analysts have adjusted their global GDP forecasts from 3.1%y/y for 2012 to 2.7%. We now expect the Eurozone economy to contract by 0.7% next year, with France, Italy, Spain and the UK all entering recession. The US is also expected to grow by 2.0% this year (vs. 2.3% original forecast).
CHF
SNB Chairman Hildebrand said that the Swiss franc is `highly valued’ and he expects the currency to weaken further. These comments largely echo what other SNB officials have been saying however and the CHF failed to react much.
SNB Vice Chairman Jordan repeated that the bank is “prepared to take new measures, should economic prospects and deflationary risks make this necessary”. He added that “the franc is still at an elevated level”, and that a Eurozone breakup is not a realistic scenario.
JPY
Vice-Minister of Finance Nakao warned that Japan would intervene unilaterally in a speculative market, but said Japan was also ready to help the Eurozone nations if needed
Retail sales figures were robust overnight, coming in at 1.9%y/y. However the jobless rate increased to 4.5%.
GBP
The OBR is expected to deliver its economic and fiscal forecasts today and investors will be looking for signs of fiscal slippage to scrutinize the ability of the UK to stick to its current austerity plans.
TECHNICAL OUTLOOK at 0800 GMT (EDT +0400)
EURUSD BEARISH Support lies at 1.3286, the intraday low, a move below which would expose 1.3212. Resistance is at 1.3412 ahead of 1.3531.
USDJPY BULLISH Clearance of 78.06 has opened the way towards 78.40 and 78.83. Support lies at 77.46.
GBPUSD BEARISH Initial Support lies at 1.5459, a break below which would open 1.5423. Resistance is at 1.5656.
USDCHF BULLISH Move above 0.9331 would pave the way for gain towards 0.9401. Key support lies at 0.9085.
AUDUSD BEARISH Break below 0.9863 would expose 0.9742. Resistance is at 1.0080.
USDCAD BULLISH Near-term resistance is at 1.0474, a rise through which would expose 1.0524, Nov. 25 key high. Support lies at 1.0283 ahead of 1.0208.
EURCHF NEUTRAL Key resistance is at 1.2474 while support lies at 1.2251.
EURGBP NEUTRAL Support lies at 0.8569 ahead of 0.8546, while resistance is at 0.8648 ahead of 0.8865.
EURJPY BEARISH Support comes in at 102.87 ahead of 102.49. Resistance is at 105.57.
SCHEDULE
Please visit GCI’s Economic Calendar for a schedule of market news and events.
