Weekly wrap: Special FX: Dollar/yen breaches ¥100 level – 14.05.2013
Source: Henderson Global Investors
Market momentum continued last week, with the S&P 500 and Dax ascending to new highs and the FTSE closing above 6,600 for the first time since 2007. There was a ‘Nirvana’ moment in the Japanese market as the yen broke through the psychological ¥100 barrier versus the dollar for the first time in four years; the Nikkei responded by reaching a five-year high. ‘Abenomics’, the aggressive blend of policies advocated by Japan’s new central bank governor, continues to raise expectations for further yen weakening and improving Japanese corporate profits. Japanese government bonds sold off sharply last week; the prices of US and German 10-year debt also ended lower (yields higher).
It was an interesting week for monetary policy, with three more central banks – Australia, Poland and South Korea – cutting interest rates by 25 basis points, mirroring the European Central Bank and Reserve Bank of India’s reductions the previous week. But it was a different story in the UK: the Bank of England (BoE) left its policy unchanged, while investors grew more anxious that the US could begin tapering its asset purchases. US initial jobless claims (for employment benefits) appeared to confirm an improving employment trend. In Germany, factory orders rising 2.2% (March, month-on-month; m-o-m) suggested Europe’s largest economy had put its recent soft patch behind it, while UK industrial output rose more than expected in March. In China exports climbed 14.7% in April, while imports surged 16.8%, generating a significant trade surplus of around US$18bn for the month.
Party starter or party pooper? Eurozone growth data; King’s ‘swan song’ as BoE Governor
After a strong performance from equities last week, investors will be wondering whether European data might dampen the party mood. Eurozone industrial production comes to the fore on Tuesday, swiftly followed by the initial reading of first quarter euro area economic growth on Wednesday – a small contraction of 0.1% quarter-on-quarter (q-o-q) is expected. Hopes are pinned on Germany to manage a 0.3 % q-o-q return to growth after declining -0.6% in the prior quarter. In the UK, the BoE’s outgoing governor, Sir Mervyn King, will give his last Quarterly Inflation Report press conference (Wednesday). Also mid-week, UK labour data is anticipated to show unemployment staying low, but earnings growth fading.
In the US, the April advance retail sales report (Monday) is expected to show headline sales declining 0.3% m-o-m, pulled down by gasoline station sales. Wednesday brings US manufacturing data in the shape of the Empire State survey, with analysts anticipating modest expansion in May. On the same day industrial production data may show a 0.2% decline m o m from March’s reading of 0.4%. The NAHB’s index of homebuilder sentiment is due on Wednesday and housing starts and building permits are scheduled for Thursday. Consumer prices index inflation (also Thursday) is expected to drop 0.2% m-o-m in April, driven again by declining energy prices.
In Asia, investors will be hoping that Japan’s new policies are feeding through to Japanese GDP growth (Thursday): analysts expect a rise of 0.7% q-o-q for the first quarter (preliminary reading).