Daily Forex Focus – 19 January
Global stocks this morning are mixed with the Euro Stoxx 50 down -0.06% (FTSE-100 -0.02%; DAX +0.31%; CAC-40 -0.02%; IBEX -0.56%). USD and USTs are lower and most commodities rose after the IMF proposed a $500bn expansion of its lending resources to insulate the global economy against any worsening of Europe’s debt crisis. The IMF is pushing China, Brazil, Russia, India, Japan and oil exporting nations to be the top contributors to the bailout fund that may be initiated at the February 25-26th meeting of G-20 FinMins and central bankers in Mexico City.
The IMF currently has $385bn available for lending and wants to boost that amount to $885bn. A positive for European bank stocks was the decline in the 3-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, to 78 bps below the EURIBOR offered rate, a 26-week low.
Limiting gains in stocks and the “UR/USD was the action by Germany’s Economy Ministry to reduce its 2012 German GDP forecast to +0.7%, down from an Oct forecast of +1.0% as the debt crisis dampens the outlook for sustaining exports. The World Bank also cut its growth estimates as they reduced their 2012 global growth forecast to +2.5% from a June estimate of +3.6%, saying a recession in the Eurozone threatens to exacerbate a slowdown in emerging markets. Fitch said a 2-notch Italy downgrade is an ‘option’. Fitch has Italy (and Spain, Belgium and Ireland) on negative watch at the moment but a 2-notch cut for Italy would still leave it one notch above S&P. “UR/USD traded at $1.2820 after jumping to a session high of $1.2845.
Also supporting the EUR was solid demand seen at a German auction of 2-year notes, while Portugal managed to sell short-dated paper without a hitch despite being downgraded to “junk” status by S&P late last week. France’s Le Monde reports that French regulators to inform banks they will have to boost write-down on Greek debt to 70-75%.
Asian stocks today closed mixed with Japan up +0.99%, China -1.56%, Australia +0.05%, South Korea unchanged, India -0.09%. Asian stocks found support after German investor confidence rose to a 6-month high, which suggests concern over the European debt crisis is receding. Energy and raw-material producers gained as most commodities rallied, while Japanese makers of factory equipment rose after Japan’s Machine Tool Builders’ Association said that Japan Dec orders for machine tools climbed +17.4% y/y, a number Credit Suisse AG said was “unexpectedly firm.” Chinese stocks closed lower as property developers slid on concern a property-market slowdown will crimp demand for building materials and consumer goods.
China’s 7-day repurchase rate, a gauge of funding availability in the financial system, jumped 58 bps to 7.72%, the highest in 27 weeks as banks hoard cash in the run up to the Lunar New Year holiday next week. Finally China saw a 12.7%y/y drop in FDI in December reinforcing concerns about capital outflows late last year. Reflecting those concerns, local press today reported speculation that authorities may double the quota for the Qualified Foreign Institutional Investor programme (from $30bn to $60bn) signalling a more welcoming attitude to foreign investment. There is also ongoing talk that China may cut the reserve requirement ratio by 50 bps (taking it to 20.50%) by the end of this month.
Wall Street Updates
US mortgage applications were up 23.1% in the week ended January 13th, according to the Mortgage Bankers Association. Both key components had strong gains, but re-financings led with a gain of 26.4% on the week. The weekly report on chain store sales from ICSC showed a gain of 0.1% for the week ended January 14th; sales are said to be up 3.0% for the week when compared to the corresponding week from a year ago. Goldman Sachs reports Q4 EPS of $1.84, well above the estimate of $1.23; but Q4 revenues fell short at $6.05bn v the expectation for $6.39bn. The December reading of headline PPI fell 0.1% m/m, but the Core PPI was up 0.3%; both figures were expected to be +0.1% m/m. The annualized rates were +4.8% and +3.0%, respectively. TICS for November shows the net change in foreign holdings of long-term US securities was +$59.8bn v expectations of +$40.0bn. DJIA open down 23.50 (-0.19%) at12,458.57 S&P 500 falls 0.84 (-0.06%) at 1,292.83, but the NASDAQ opens up 2.90 (+0.11) at 2,730.98 .