Yen to bear the weight of PMIs

The immediate concern is that the slew of PMIs out early next week will suggest that the global recovery is stumbling, including in the US. Asia has the potential to trade on the weak side in this environment. There will be a risk of some unwinding of the recent rise in Asian yields if both the Chinese and US PMIs disappoint. By Monday, we could be trading in another risk aversion trading environment. The dollar has ended the week on firmer footing, a sign that month-end rebalancing and positioning has been completed , allowing investors to go back to trading fundamentals, which remain dollar positive. With the BoJ meeting twice in April, a percentage of the market remains bearish on Japanese yields as they price in policy easing at the second of these meetings.

Below are some other highlights of the week:

Asia

• JPY: BoJ Governor Shirakawa warned of the risk of keeping interest rates low for too long. He said, “If low interest rates induce investment projects that are only profitable at such interest-rate levels, this could have an adverse impact on productivity and growth potential of the economy by making resource allocation inefficient.”
• NZD: Kiwi trade balance was back in surplus of \$161 m in February, following a revised deficit of \$159m in January. Exports fell -6.9%, y/y, to \$3.59b from a revised \$3.73b while imports dropped -6.6%, y/y, to \$3.43b from a revised \$3.89b in February.
• CNY: Chinese industrial companies had their first January-February profit decline since 2009 as slowing exports and a government campaign to cool property prices damped earnings. Year to date, industrial profits declined by -5.2%, y/y, in February, compared with a +25.4%, y/y, gain in January.
• KRW: Korea’s consumer confidence rose to 101 in March from 100 in February, the highest level in four-months.
• PHP: The Philippines’ imports fell -3.2%, y/y, in January following a revised -6.4%, y/y, decline in December.
• KRW: Korea’s manufacturing confidence index rose to 85 in April from 84 for March, the highest level in six months. The non-manufacturing index for April advanced to 82 from 80 in March.
• THB: Thai exports unexpectedly rose +0.9%, y/y, in February, stronger than the consensus forecast for a -5% fall and has helped push the trade balance back into a \$530m surplus from a \$1.1b deficit in January.
• BRL: The Brazilian finance ministry has denied they were studying expanding the IOF tax to all FX transactions.
• CNY: A Chinese state-owned company reportedly has defaulted on commercial paper worth 400 million yuan ($63.4m) maturing on April 15 as they are expected to miss their loan payments. Expect the government to likely intervene ahead of a contagion event.
• JPY: Japan’s retail sales rose more than forecasted for February, up by +3.5%, y/y, after a +1.9% increase in January, the biggest advance in nearly two-years and a third straight monthly rise.
• CNY: China has approved a pilot project to allow residents of Wenzhou to invest privately overseas as a test bed for future liberalization of the capital account.
• KRW: South Korea recorded a current account surplus of +\$639m in February following a revised -\$969mn deficit in January.
• NZD: New Zealand’s NBNZ business confidence index rose to 33.8 in March, up from 28 in February. Also, the NBNZ activity outlook index increased to 38.8 from 31.2 in February.
• AUD: Aussies ABS quarterly job vacancies rose by +0.7% in February compared with a revised fall of -3.4% in November.
• JPY: Japan’s IP unexpectedly fell -1.2%, m/m, in February after a +1.9% gain in January. Inflation, on the other hand, surprised to the upside with headline CPI rising +0.3%, y/y, while core-CPI (ex-food and energy) fell -0.6%. The market continues to sell JPY on dollar pull backs.
• AUD: Aussie new home sales recorded a modest gain of +3%, m/m, in February following large drops in the previous two months.
• NZD: Kiwi building permits fell -6.7%, m/m, in February after an +8.3% rise in January.

AMERICAS Week in FX

Europe Week in FX

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