from the BBH Currency Strategy Team
Turnaround Tuesday appears to be in force today, with the dollar softer and EM firmer. However, ranges are fairly narrow as trading slows and markets thin ahead of the Christmas holiday.
Euro staged a recovery during the Asian session, due in part to supportive comments from China official. Vice Premier Wang said that China supports the IMF crisis efforts and that China “has taken concrete action to help some EU members counter the sovereign-debt crisis."
However, the euro recovery was later nipped in the bud after Moody’s announced that it was putting Portugal’s A1 rating on review for possible downgrade. We have been highlighting downgrade risk for Portugal, as our model shows it as A-/A3/A- vs. actual ratings of A-/A1/AA-. Moody’s said it may cut "a notch or two" but added that Portugal’s solvency is not in question. While that would match our model rating, we think the market clearly has other ideas. We also note that euro zone sovereign ratings are a moving target, with budget and debt numbers set to deteriorate further in 2011.
EUR/CHF recovery also stalled on Portugal news, and is making new record lows just above 1.26 even as EUR/USD looks likely to again test support at the 200-day average today around 1.31.
Last week’s ECB bond purchases were much smaller than expected. At EUR603 mln, purchases were the lowest since the last week of October.
Spain reported tax revenues for the first 11 months of the year are up 11% y/y.
Peripheral bond yields are all higher. Ireland 10-year bond is the worst performer, with yield up 32 bp on the day. Greece is next, up 17 bp. With German 10-year yields flat, the peripheral spreads continue to widen.
Asian equity markets were largely up, and European equity markets have also started the day higher despite the ongoing concerns about the periphery. US index futures are pointing to a modest up open. No US data today ahead of the deluge Wednesday and Thursday. Canada CPI and retail sales data will be reported today.
BOJ kept interest rates steady, as expected, and said it will continue its asset purchases “steadily” to provide liquidity and to help support demand. Governor Shirakawa warned about the risks of rising in bond yields. No reactions in the FX market, as dollar/yen has traded in a 23 pip range so far today.
UK budget deficit was wider than expected in November (net borrowing of GBP22.8 bln reported) despite austerity efforts by the government.
Brazil mid-December IPCA inflation lower than expected, while November current account report to be released today. We still expect 50 bp hike in January. BRL flirting with 1.70 area on improved EM sentiment today. HUF remains soft, however, after yesterday’s surprise hike by the central bank.
About Marc Chandler
Marc Chandler joined Brown Brothers Harriman in October 2005 as the global head of currency strategy. Previously he was the chief currency strategist for HSBC Bank USA and Mellon Bank. In addition to frequently providing insight into the developments of the day to newspapers and news wires, Chandler's essays have been published in the Financial Times, Barron's, Euromoney, Corporate Finance, and Foreign Affairs. Marc appears often on business television and is a regular guest on CNBC.
Like us on Facebook
- RT @SenRandPaul: ICYMI: I penned an op-ed for @washtimes on blocking the pathway to a national ID. http://t.co/uI3W9JenWA # 1 hour ago
- Samaras on Ireland: “low rates of taxation. We will follow this example as well as soon as we start coming out of the crisis.” # 3 hours ago
- Irish model inspires Samaras as Stournaras eyes primary surplus, more debt relief http://t.co/4Fv8gv5w02 # 3 hours ago
- ICYMI: US HY issuers turn to risky structures as investors snap up deals http://t.co/t0fikwCq6f # 3 hours ago
- Links: 2013-05-24
- Links: 2013-05-23
- On the Fed’s tapering and the volatility in Japan
- On European rebalancing and Germany’s excess savings
- Links: 2013-05-22
- Excess German savings, not thrift, caused the European crisis
- On Greece’s eventual exit from the eurozone
- Links: 2013-05-21
- On Germany’s response to Euroland’s problems
- Germany is willing to accept a higher inflation target but does it matter?
- Links: 2013-05-20
- Links: 2013-05-19
- Links: 2013-05-18
- Links: 2013-05-17
- Full text: Moody’s upgrades Turkey’s government bond ratings to Baa3, stable outlook
- Some thoughts on Canada’s housing market
- On big data and why Google’s Android is winning and fragmentation is no longer a problem
- Links: 2013-05-16
- Europe’s sinking economy
- Links: 2013-05-15
- Has house price deflation begun in Canada?
- Portugal’s Japanese Problem
- Feedback Loops
- The real experiment that is being carried out in Japan
- Android is killing iOS with nearly 75% share in Q1 2013
- Kyle Bass gets it wrong on Japanese bonds
- Money is Gold
- On claims of depositors, subordinated and creditors and central banks in bank resolutions
- Massive Iceberg Ahead for the European Monetary Union
- On Japan’s widowmaker trade and Reinhart and Rogoff
- Why the Reinhart-Rogoff paper was flawed right from the start
- A reality check on German household wealth
- Buiter: Most European banks are zombies
- On the crash in gold
- The Need for Wholesale Change
- What are the differences between QE1, QE2 and QE3?
- Spain’s economy is in tatters
- Buiter: ‘it was clear that Cyprus was a laboratory’
- In the long run we are all in trouble
- Deposit insurance after Iceland and Cyprus
- The largest European banks by assets
- Why Germans are poor
- Chart of the Day: Debt Deflation in the Eurozone
- How bond market vigilantes force rates higher
- Has house price deflation begun in Canada?