IMF Lowered Global Growth Forecast, Yen Sell-Off Resuming?

Risk markets are mixed in Asian session today as IMF cut global growth forecasts but sentiments were supported by China's manufacturing data. In the currency markets, yen crosses seemed to have drawn some support from near-term support level and pared some of this week's losses.

The Canadian dollar remains weak as post BoC selling is still in progress. Australian dollar is also a touch weaker. European majors are stuck in tight range against dollar for the moment. The key focuses for the rest of the week will be on whether yen selling would gather momentum again, also, whether EUR/USD would finally break out from recent tight range.

IMF lowered its global economic forecast. The world lender forecast that world GDP would expand 3.5% in 2013 and then 4.1% in 2014. These were below October's estimates of 3.6% and 4.6% respectively. In the eurozone, the IMF estimated that the economy would contract -0.2%, down from previous estimate of 0.2%. For the US, growth would ease to 2% this year from 2.1% estimated previously.

Chinese economy would grow 8.2% in both 2013 and 2014. IMF noted that "the near-term outlook for the euro area has been revised downward, even though progress in national adjustment and a strengthened EU-wide policy response to the euro area crisis reduced tail risks and improved financial conditions for sovereigns in the periphery."

But, "the return to recovery after a protracted contraction is delayed" and "Risks of prolonged stagnation in the euro area as a whole will rise if the momentum for reform is not maintained." It also warned that "adjustment efforts in the periphery countries need to be sustained and must be supported by the center."

In China, the HSBC PMI manufacturing index rose from 51.5 to 51.9 in January, hitting the highest level in two years since January 2011. HSBC noted that "despite the still-tepid external demand, the domestic- driven restocking process is likely to add steam to China's ongoing recovery in the coming months." The official PMI manufacturing will be released on February 1.

In Japan, trade deficit narrowed slightly to JPY -800.7b in December as exports dropped rose 2.4% while imports rose 1.2%. Year over year, exports to China continued to fall by -15.8% yoy while exports to US also dropped -0.8% yoy. Exports to Europe were also weak with Germany down -0.2% yoy, UK down -10.2% yoy and France down -16.8% yoy.

Yesterday, BoC left its key rate unchanged at 1.00% as expected. Correspondingly, the Bank Rate stayed at 1.25% and the deposit rate at 0.75%. The central bank also revised lowered its GDP forecast to 2% in 2013, down from previous estimate of 2.3%. The economy will reach full capacity in the second half of 2014 with GDP accelerating to 2.7% by then end of that year. Inflation is expected to average at +0.9% in 1Q13 and stay below +2% until 3Q14. The BOC forecast inflation would be at 2% by 4Q13. Canadian dollar slipped after the report as the central bank saw less urgency to hike interest rates.

Looking ahead, PMI manufacturing data from the eurozone will be the main focus today and both PMI manufacturing and services indices are expected to show mild improvements. US will release jobless claims and leading indicators.