FX Overseas: EUR Off On 'Recession' Comment

The dollar stalled after risk appetite surged on Tuesday as a result of Chinese trade data which showed a higher-than-expected rise in imports, which increased by 14.1% y/y when only a 6.6% y/y rise had been expected. The data inferred buoyant Chinese demand for imports and therefore was seen as a net positive not only for the global economy but especially for its trade neighbours, chief of which is Australia; and the aussie and the kiwi both saw large gains after the news. On the data front JOLTS Job Openings (Feb) rose above-expectations to 3925 from 3611 previously; Wholesale Inventories fell by -0.3% when a more muted fall to 0.5% from 0.8% had been anticipated. Wholesale Sales rose more-than-forecast m/m in February by 1.7% from -0.8% when a rise of 1.3% had been expected. The dollar gained some strength on Wednesday after the release of the FOMC Minutes showed members proposing to taper QE during 2013 with an eventual view to ending the programme altogether at the end of the year.

EUR
The euro lost some of Tuesday's gains on Wednesday after comments from Jean-Claude Juncker the former head of the eurogroup and Luxembourg PM in which he said that the euro zone would remain “stuck in a recession”. These were offset, however, by reports that the troika were considering a new plan to extend Ireland's and Portugal's bailout repayment deadline. The extensions will be discussed at the next E.U summit over the weekend but are expected to gain widespread support, particularly in the case of Ireland, although Portugal may need to give assurances of how it intends to plug the deficit after its constitutional court threw out a bill to cut public servant pay. On the data front, Tuesday saw the release of the German Trade Balance (Mar), which showed a rise in the Surplus to 16.8bn from 13.6bn previously; the German Current Account also showed a healthy surplus, rising to 16.0bn from 9.7bn. German Exports and Imports fell more deeply than forecast, with the former falling by -1.5% from 1.3% and the later -3.8% from 3.3% previously. The single currency was supported after bond sales in Italy and Spain showed bouyant demand.

GBP
The pound stalled after a meteoric rise on Tuesday, which was caused by better-than-expected Industrial and Manufacturing data. Industrial Production recovered to -2.2% y/y versus the -2.8% expected and -3.1% previous, and m/m rose by 1.0% versus 0.4% expected and -1.3% previously. Manufacturing fell by -1.4% y/y as expected, from -3.3% previously, and m/m rose by 0.8% from -1.9% previously. The stronger than expected data helped lift the outlook for the U.K and continued the recent trend for better data which started with Services PMI last week. The trend has led to a reassessment of 1st quarter GDP expectations, which had been that they would be negative signalling a triple dip recession, however it is now thought they might show a slight positive result. Indeed the NIESR GDP estimate on Tuesday gave a 0.1% forecast for the Q1. Other data showed a slight easing in House Prices after the RICs Balance eased to -1% when it had been expected to give a -5% result. BRC Sales also rose more than expected to 1.9% in March when it had been expected to rise by a more muted 1.0%. Not all figures were rosy, however, as the Trade Balance showed a deepening deficit of -4.3bn versus -3.4bn previously and -3.7bn expected.

JPY
The yen continued its down-trend on Tuesday although it slowed its descent on Wednesday after commentary from the new BoJ governor Haruhiko Kuroda indicated he thought enough stimulus had now been initiated for Japan to reach its 2.0% inflation target in two years. Markets reacted by cutting bearish bets on the yen as the governor seemed to be saying there would not be any more stimulus measures announced and what had already been down was sufficient. Kuroda added that the BoJ would abandon its usual policy of making policy changes in incremental steps; instead introducing new policy as an when it was required. Data on Tuesday showed a deepening fall in Machine Tool Orders, which fell by -21.6% versus -21.5% previously. Bank Lending showed a slight rise of 1.6% y/y in March from 1.5% previously and Lending Ex-Trust rose by 1.9% from 1.8% previously.