Key Overnight Developments
• UK House Prices, Retail Sales Disappoint in February
• Australian Business Confidence Surges to 7-Year High
• WSJ Article: Moody’s May Downgrade UK Bank Debt
Critical Levels
The Euro was little changed in overnight trade, continuing to consolidate in a narrow 40-pip range below 1.3640 to the US Dollar that emerged in the second half of the US session. The British Pound declined 0.5 percent against the greenback after a disappointing set of house price and retail sales figures (see below). A Wall Street Journal article claiming that Moody’s may downgrade the bonds of some UK banks after the government winds down its financial-sector bailout programs also encouraged GBP selling. We remain short EURUSD at 1.4881 and GBPUSD at 1.5765.
Asia Session Highlights
UK House Prices stumbled in February according to a survey of real estate agents from the Royal Institution of Chartered Surveyors (RICS), with only 17 percent of respondents reporting rising property prices – the smallest in six months. Economists predicted a 30 percent outcome ahead of the release. RICS spokesman Jeremy Leaf said, “The magnitude of the gains going forward is likely to continue to ease, reflecting the fact that new supply coming onto the market is starting to outstrip fresh demand.” Separately, UK Retail Sales rose 2.2 percent in the year to February according to a report from the British Retail Consortium (BRC). BRC Director General Stephen Robertson said, “Despite appearances, these results are not that strong [because] the growth is compared with very weak figures a year ago.” Stephenson added that although “consumer confidence is certainly up…unemployment is rising again [and] its clear customers are still cautious.”
A gauge of Australian Business Confidence matched a seven-year high in February according to a report from the National Australia Bank. The details of the report looked broadly encouraging, with gains in the headline figure driven by strong improvements in forward orders and export sales. However, trade balance figures released last week suggest that much of the resilience in sentiment likely owes to buoyant Asian (specifically, Chinese) demand for minerals such as iron ore. China’s recent attempts to clamp down on lending growth amid fears that the south Asian giant will overheat may bode ill for the mining sector, hinting that the current resilience in business confidence may prove fleeting.
Euro Session: What to Expect
Switzerland’s Consumer Price Index is expected to show the annual pace of inflation held at 1 percent in February, matching a 14-month high recorded in the previous month. The outcome will also mark the third consecutive month of positive price growth and comes a day ahead of the monetary policy announcement from the Swiss National Bank. While a rate hike is surely out of the question, SNB chief Philipp Hildebrand and company may now have room to drop their now-familiar refrain about lingering deflation risk and possibly even address the time frame for withdrawing their policy of intervention in currency markets to “prevent any excessive appreciation of the Swiss Franc against the Euro.”
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