Abe makes his official nominations to replace the BoJ leadership, with the aggressive Iwata as deputy governor. Meanwhile, the Euro is trying to pretend that the Italian election didn’t happen – but it did.
Japan’s PM Abe has nominated Haruhiko Kuroda as the next BoJ chief. He was considered in the middle of the spectrum of candidates, and what one Wall Street Journal article a few days ago called “out of the mainstream” as he may be more likely to shake things up due to his outsider status. Abe appointed an even more aggressive deputy governor, Kikuo Iwata, who has been an aggressive advocate for reflationist policies for many years. The final deputy governor appointment was for a current BoJ operative Nakaso. It was perhaps the nomination of Iwata as deputy governor that had the JPY weaker overnight - as well as the market trying to brush off the implications of the Italian election and risk appetite springing back to life even before the Asian session.
Italian elections – basta?
Interesting to see the EUR/USD back close to the old support levels/now resistance levels around 1.3150 that prevail as the market tries to brush off the implications of Italy’s election earthquake. Grillo stated, to no great surprise, that he is not interested in forming a coalition, as his express ambition is to act as a disruptive force rather than to govern. It will be fascinating to watch whether Berlusconi and Bersani can manage to take stock and form a grand coalition – perhaps the only hope for near term stability on the Euro question. In any case, no one will want to ally themselves with Monti, who is the scapegoat for Italy’s current economic weakness, as he is branded an EU apologist.
Italy’s bargaining position with the EU is actually rather compelling, as it would have the easiest time of all the major peripheral countries, simply by walking away and relaunching the lira. It’s budget is close to a primary surplus and private debt levels are very modest, as are total debt levels in its economy. This will not be a case of Italy simply requesting aid via the OMT, as there is no way the country will submit to the heavy oversight and austerity rules that would be required. Either Germany/the core will have to move toward Italy at some point as a new deal is put together, or it's back to pondering systemic crisis scenarios or at least an Italy partial/full exit from the EMU scenario.
Chart: EUR/USD
The EUR/USD is at a crossroads here in the 1.3150 area overnight, the key support on the way down ahead of the Italian elections. It’s hard to believe that the pair can work back higher after the uncertainty generated by the situation in Italy, but the sense of calm at present should be rather disquieting for bears, and we have come a long way in very short order, so a squeeze can by no means be ruled out. The short-termers can remain bearish if we remain below the 1.3150/60 area. But, if a squeeze develops, the 1.3300 area could quickly come into play, and even larger retracement levels like the big 0.618 retracement up above 1.3400 – the possible scenario if we see a grand coalition in Italy. So, yes, the chart structure appears capped and the bull market over, but the risk of a considerable throwback rally remains. To the downside, the 1.3020/00 area support is the important gateway to further declines.
EUR/USD" title="EUR/USD" width="455" height="301" />
Looking ahead
The budget sequester circus is upon us once again, as tomorrow’s deadline for the automatic budget cuts is fast approaching. The consensus has moved toward believing that the cuts will take place, which could lean against the near term prospects for the US economy and corporate earnings, but last minute deals are most certainly not unheard of in Washington in recent years.
We have the final US regional manufacturing surveys up today, as well as a revision to the Q4 GDP that is likely to flip the number back into positive territory from the marginally negative initial estimate. In Asia, Australia and China kick off the world manufacturing PMI day, with the US ISM to follow tomorrow.
Economic Data Highlights
Japan’s PM Abe has nominated Haruhiko Kuroda as the next BoJ chief. He was considered in the middle of the spectrum of candidates, and what one Wall Street Journal article a few days ago called “out of the mainstream” as he may be more likely to shake things up due to his outsider status. Abe appointed an even more aggressive deputy governor, Kikuo Iwata, who has been an aggressive advocate for reflationist policies for many years. The final deputy governor appointment was for a current BoJ operative Nakaso. It was perhaps the nomination of Iwata as deputy governor that had the JPY weaker overnight - as well as the market trying to brush off the implications of the Italian election and risk appetite springing back to life even before the Asian session.
Italian elections – basta?
Interesting to see the EUR/USD back close to the old support levels/now resistance levels around 1.3150 that prevail as the market tries to brush off the implications of Italy’s election earthquake. Grillo stated, to no great surprise, that he is not interested in forming a coalition, as his express ambition is to act as a disruptive force rather than to govern. It will be fascinating to watch whether Berlusconi and Bersani can manage to take stock and form a grand coalition – perhaps the only hope for near term stability on the Euro question. In any case, no one will want to ally themselves with Monti, who is the scapegoat for Italy’s current economic weakness, as he is branded an EU apologist.
Italy’s bargaining position with the EU is actually rather compelling, as it would have the easiest time of all the major peripheral countries, simply by walking away and relaunching the lira. It’s budget is close to a primary surplus and private debt levels are very modest, as are total debt levels in its economy. This will not be a case of Italy simply requesting aid via the OMT, as there is no way the country will submit to the heavy oversight and austerity rules that would be required. Either Germany/the core will have to move toward Italy at some point as a new deal is put together, or it's back to pondering systemic crisis scenarios or at least an Italy partial/full exit from the EMU scenario.
Chart: EUR/USD
The EUR/USD is at a crossroads here in the 1.3150 area overnight, the key support on the way down ahead of the Italian elections. It’s hard to believe that the pair can work back higher after the uncertainty generated by the situation in Italy, but the sense of calm at present should be rather disquieting for bears, and we have come a long way in very short order, so a squeeze can by no means be ruled out. The short-termers can remain bearish if we remain below the 1.3150/60 area. But, if a squeeze develops, the 1.3300 area could quickly come into play, and even larger retracement levels like the big 0.618 retracement up above 1.3400 – the possible scenario if we see a grand coalition in Italy. So, yes, the chart structure appears capped and the bull market over, but the risk of a considerable throwback rally remains. To the downside, the 1.3020/00 area support is the important gateway to further declines.
EUR/USD" title="EUR/USD" width="455" height="301" />Looking ahead
The budget sequester circus is upon us once again, as tomorrow’s deadline for the automatic budget cuts is fast approaching. The consensus has moved toward believing that the cuts will take place, which could lean against the near term prospects for the US economy and corporate earnings, but last minute deals are most certainly not unheard of in Washington in recent years.
We have the final US regional manufacturing surveys up today, as well as a revision to the Q4 GDP that is likely to flip the number back into positive territory from the marginally negative initial estimate. In Asia, Australia and China kick off the world manufacturing PMI day, with the US ISM to follow tomorrow.
Economic Data Highlights
- Japan: February Markit/JMMA Manufacturing PMI out at 48.5 vs. 47.7 in Jan.
- Japan: January Industrial Production out at +1.0% MoM and -5.1% YoY vs. +1.5%/-4.9% expected, respectively and vs. -7.9% YoY in December.
- New Zealand: February ANZ Business Confidence rose to 39.4 vs. 22.7 in January.
- UK: February GfK Consumer Confidence out unchanged at -26 as expected.
- Switzerland: Q4 GDP out at +0.2% QoQ and +1.4% YoY vs. 0.0%/+0.9% expected, respectively and vs. +1.2% YoY in Q3
- Germany: February Unemployment Change out at -3k vs. 0k expected and -14k in January.
- Germany: February Unemployment Rate out at 6.9% vs. 6.8% expected and 6.9% in January.
- Euro Zone: January CPI (1000)
- Switzerland: January CPI (1000)
- Germany: February preliminary CPI (1300)
- US Fed’s Lockhart to Speak (1315)
- Canada: Q4 Current Account (1330)
- US: Q4 GDP revision (1330)
- US: Weekly Initial Jobless Claims (1330)
- US: February NAPM Milwaukee (1400)
- US: February Chicago PMI (1445)
- US: Weekly Bloomberg Consumer Comfort Survey (1445)
- US: February Kansas City Fed Manufacturing Survey (1600)
- Australia: February AiG Performance of Manufacturing Survey (2230)
- Japan: January Jobless Rate (2330)
- Japan: January Overall Household Spending (2330)
- Japan: January National CPI (2330)
- China: February Manufacturing PMI (0100)
- US: Fed’s Evans to speak (0100)
- China: February HSBC Manufacturing PMI (0145)