Asian Markets Higher On Economic Data, Forex Steady

Published 02/04/2013, 04:57 AM
Updated 03/09/2019, 08:30 AM

Asian equities opened the week broadly high in response to positive job and manufacturing data from US on Friday. Also supporting sentiments was services PMI from China, which improved slightly from 56.1 to 56.2 January, hitting the highest level since August. The forex markets are pretty steady though, with major pairs and crosses trapped in tight range. The markets experienced strong rally and euro and steep selloff in yen last week. There is no sign of reversal in these trends yet and the main focus this week will be on how other major currencies would perform comparing to each other, in reaction to a number of events. That would include RBA meeting which should hint on the change of a rate cut in first half. Employment data from Australia, New Zealand and Canada will be closely watched. Next BoE governor Carney, current BoC governor, would appear before UK parliament for a hearing. If he affirms his stance on tolerating inflation above BoE's target range of 2-3%, market could start to price in additional easing from BoE and trigger further rally in EUR/GBP. ECB meeting will be watched but shouldn't trigger much reaction unless president Draghi expresses concerns on recent strength in Euro.

In Japan, Finance Minister Aso said over the weekend that , the weaker yen was a result of the "policies aimed at ending deflation", but "not the goal". He hit back at Europe's claim that BoJ's move would contribute to a "currency war" and said that Japan "endured without complaining" when yen was strong as a result of the global financial crisis back in 2008. Aso also noted that there is "no one in the government, the bureaucracy or the BOJ who has experience in anti-deflation policy" and Japan could only "learn from history". Aso said the government is now imitating the Depression-era finance minister who told BoJ to underwrite government debts to fund deficit spending, which was then increased by as much as 34%.

In US, St. Louis Fed Bullard expressed his optimism that US unemployment rate would drop to "low 7s" by year end and GDP would be at around 3%. And he claimed that should then be considered "substantial improvement" by Fed in considering its policies. Regarding last week's job report, Bullard said that the three month average NFP growth of 200k is "an encouraging sign". He noted that Fed might think about scaling back from the open-ended asset purchase if there are some "good data for a couple of months". And, if there are good signs "through the spring of the summer", Fed could "throttle back just a bit" without declaring the end of the QE3 program.

Looking at latest CFTC data for January 29, Euro net positions continued to improve for another week indicating accumulation is still in progress. Sharp deterioration was seen in Canadian dollar longs and Sterling longs. Meanwhile, yen net shorts rose again arguing that positions adjustments might be over. Latest CFTC data showed Euro net longs rose for another week to 27.4k contracts on January 29, comparing to prior week's 21.4k. Yen net shorts rose again to 71.2k, comparing to prior week's 64k. Sterling net longs dropped for another week to 10.6k, comparing with prior 17.9k. It's been in steady decline after hitting 2012 high at 37.3k back in December. Australia dollar net longs dropped to 85.3 but is trapped in range of 75k/103k since December. Canadian dollar net longs dropped sharply to 35.1, comparing to prior 58.0k. It's still in sharp decline since September's 111.9k.

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