Euro Retreats as Greece Fears Return, Aussie Dollar Sold on Rates View

2012-02-10 06:52:00 Ilya Spivak, Head Strategist, APAC

Talking Points

Euro Retreats from 2-Month High as EU Withholds Greek Aid
Australian Dollar Sinks on RBA Rate Cut Bets, Chinese Trade Data
US Dollar Aims Higher as S&P 500 Futures Point to Risk Aversion

The Greece bailout fiasco appeared resolved after the warring factions in the coalition government finally agreed to accept additional budget cuts in exchange for €130 billion in additional aid. Confidence was quickly shattered anew however after Eurozone finance ministers opted to withhold the funds until the new austerity measures are ratified by a parliamentary vote. Such smug behavior reinforces our expectations that regional policymakers are now prepared to let Greece fail if their demands are not met. Indeed, Athens can no longer hold the region hostage after the ECB lent banks enough capital via December's LTRO to ensure a credit squeeze would be averted even in the event of a default.

The safe-haven US Dollar and Japanese Yen pushed broadly higher while the Euro retreated from a two-month high following the announcement. The Australian Dollarunderperformed as a disappointing batch of economic news compounded Eurozone-linked pressure on overall risk appetite. The Reserve Bank of Australia lowered its 2012 outlook for economic growth in its monthly policy statement, saying it sees scope for additional interest rate cuts if the demand falters. The bank added that economic growth outside the resource sector has been “below trend” and warned that it expects a further increase in the jobless rate this year. An ominous set of Chinese Trade Balance data reinforced the RBA’s message. Imports plunged 15.3 percent from a year before in January, marking the largest drop since August 2009 and pointing to fading demand from Australia’s top trading partner.

Looking ahead, the Greece issue will likely to exit the spotlight as it becomes increasingly clear that the newfound cavalier attitude of EU officials reflects the substantially reduced systemic risk that a default there now poses. Meanwhile, worries about the outlook for global economic growth present a stronger and far more persistent headwind for risk appetite. Indeed, the most recent flare-up in Eurozone debt fears obscured the fact that economists’ median world GDP expectations for 2012 have been sinking precipitously since early August. This theme appears ready to reemerge and promises to broadly boost the US Dollar in the week ahead. S&P 500 stock index futures are under heavy pressure in late Asian trade, hinting the markets may see a preview out this dynamic in the final hours of the trading week.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
21:45	NZD	NZ Card Spending – Retail (MoM) (JAN)	1.2%	0.5%	-0.2% (R+)
21:45	NZD	NZ Card Spending – Total (MoM) (JAN)	1.0%	0.5%	-0.1% (R+)
23:50	JPY	Domestic CGPI (MoM)(JAN)	-0.1%	0.1%	0.0% (R-)
23:50	JPY	Domestic CGPI (YoY) (JAN)	0.5%	0.8%	1.2% (R-)
00:30	AUD	RBA Board Statement on Monetary Policy	-	-	-
3:04	CNY	Trade Balance ($) (JAN)	$27.28B	$10.70B	$16.52B
3:04	CNY	Exports (YoY) (JAN)	-0.5%	-1.5%	13.4%
3:04	CNY	Imports (YoY) (JAN)	-15.3%	-5.0%	11.8%

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
7:00	EUR	German CPI (YoY) (JAN F)	2.0%	2.0%	Medium
7:00	EUR	German CPI (MoM) (JAN F)	-0.4%	-0.4%	Medium
7:00	EUR	German CPI - EU Harmonised (YoY) (JAN F)	2.3%	2.3%	Medium
7:00	EUR	German CPI - EU Harmonised (MoM) (JAN F)	-0.5%	-0.5%	Medium
7:45	EUR	French Current Account (€) (DEC)	-	-2.3B	Low
7:45	EUR	French Manufacturing Production (MoM)(DEC)	-1.0%	1.3%	Low
7:45	EUR	French Manufacturing Production (YoY) (DEC)	0.9%	2.2%	Low
7:45	EUR	French Industrial Production (MoM) (DEC)	-0.7%	1.1%	Low
7:45	EUR	French Industrial Production (YoY) (DEC)	-0.6%	0.9%	Low
8:15	CHF	CPI (MoM) (JAN)	-0.3%	-0.2%	High
8:15	CHF	CPI (YoY) (JAN)	-0.8%	-0.7%	High
9:00	EUR	Italian Industrial Production s.a. (MoM) (DEC)	-0.5%	0.3%	Low
9:00	EUR	Italian Industrial Production w.d.a. (YoY) (DEC)	-4.6%	-4.1%	Low
9:00	EUR	Italian Industrial Production n.s.a. (YoY) (DEC)	-7.2%	-4.1%	Low
9:30	GBP	PPI Input n.s.a. (MoM) (JAN)	0.2%	-0.6%	Low
9:30	GBP	PPI Input n.s.a. (YoY) (JAN)	6.8%	8.7%	Low
9:30	GBP	PPI Output n.s.a. (MoM) (JAN)	0.1%	-0.2%	Medium
9:30	GBP	PPI Output n.s.a. (YoY) (JAN)	3.7%	4.8%	Medium
9:30	GBP	PPI Output Core n.s.a. (MoM) (JAN)	0.0%	-0.1%	Low
9:30	GBP	PPI Output Core n.s.a. (YoY) (JAN)	2.3%	3.0%	Low