The major overnight theme, as has been the case lately, has been primarily related to the wild ongoing swings in various currencies, with the JPY dominating, after the USDJPY briefly touched 94 in overnight trading on more talk, if no actual action as usual, by various BOJ officials. Of note was the bank's Sato who said the BOJ wants focus on "channel" in which monetary policy can indirectly affect FX, JPY appreciation being corrected This ongoing FX rout in turn is pushing the Nikkei higher once more, if only in nominal terms, but keeping it largely unchanged in FX-adjusted ones. Another rout was seen earlier in Australia, where the AUD plunged following a big miss in local retail sales, confirming the retail sales weakness seen previously in the US and Europe. The issue of currency wars was dominant in Europe too, when the ECB's Liikanen said the central bank has no exchange rate target, need to give banks time to focus on core task of lending. This happened as France president Hollande calls for the eurozone to manage its exchange rate, and as French finance minister repeats calls that the EUR has gone up far too much, too fast.
Macroeconomic news-wise, it was a quiet day, with German factory orders rising 0.8% sequentially on 0.7% expected. The implosion in domestic factory orders continued, with the boost driven by foreign orders coming from the Eurozone, as non-eurozone orders again declined, indicating that the stronger EUR continues to impact the Eurozone core adversely. Furthermore, factory orders declined -1.8% Y/Y, on expectations of a -1.2% drop. It appears everyone in the entire world now seems to have problems with accurate seasonal adjustments.
But perhaps the biggest news of the night was the resurgence of Silvio Berlusconi, who managed to close the lead to the Democratic Party leader Bersani, embroiled in the fallout from the Monte Paschi scandal, to just 3.7 points, or within the 4 point margin of error, before the February 25th elections. According to a SkyTG24 poll, support for Bersani’s bloc dropped 0.2 point to 33.1% from yesterday while support for Berlusconi’s bloc rose 0.1 point to 29.4%. This is certainly the most catalytically destabilizing event on the horizon for Italy, and Europe, as should Silvio win the Italian elections, an outcome unthinkable as recently as a month ago, all bets about Europe's technocratic/Goldman-forced "recovery" in which only the banks are recovering, if not the people, are off.
A quick market summary as US traders come to work:
- Spanish 10Y yield down 3bps to 5.35%
- Italian 10Y yield up 1bp to 4.46%
- U.K. 10Y yield down 1bp to 2.11%
- German 10Y yield down 1bps to 1.64%
- Bund future up 0.15% to 142.41
- BTP future up 0.03% to 111.48
- EUR/USD down 0.3% to $1.3542
- Dollar Index up 0.26% to 79.69
- Sterling spot up 0.11% to $1.5677
- 1Y euro cross currency basis swap down 1bp to -19bps
- Stoxx 600 up 0.03% to 285.65
And some more thoughts on what to expect in daily trading from Socgen:
Trading is expected to be in a transitional phase today. After an increase in risk aversion at the start of the week stemming from political uncertainty in Spain and Italy, investors on both sides of the Atlantic are not expected to find any new catalysts which would trigger strong market trends today.
Investors will probably be readying themselves for a particularly busy today tomorrow, with the ECB and BoE both meeting, and a Spanish auction.
In the meanwhile, the EUR/USD should stay beneath its lowest point from last week at 1.3712. On the other hand, the EUR should continue to outperform the JPY. The durable weakness in the JPY looks to be confirmed: the BoJ's governor asked to move up the date of his departure from 8 April to 19 March (at the same time as two other BoJ members are leaving). The EUR/JPY and USD/JPY should thus remain in demand for a while. FI-wise, the 10Y euro swap rates should continue to consolidate below 1.95%. Watch out, though, for 10Y bono yields in the lead up to the auction: they have tightened 28bp since the beginning of the week.