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Dollar and Yen Rise on Spain Downgrade, China Stimulus Disappointment

Dollar and Yen Rise on Spain Downgrade, China Stimulus Disappointment

2012-05-30 06:05:00
Ilya Spivak, Head Strategist, APAC
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Talking Points

  • Dollar, Yen Rise on Haven Demand as Stocks Slump in Asian Trade
  • China Will Not Launch Aggressive Stimulus Program, says Xinhua
  • Spain Downgrade to Cap Euro Boost from Pickup in Money Growth
  • S&P 500 Index Futures Point to Continued Risk Aversion Ahead

The US Dollar and Japanese Yen outperformed in overnight trade as Asian stocks declined, driving demand for the go-to safe haven currencies. The MSCI Asia Pacific regional benchmark equities index sank 0.8 percent after ratings agency Egan Jones downgraded Spain, fueling Eurozone debt crisis fears. Meanwhile, state-run media outlet Xinhua reported that China was not planning an aggressive round of stimulus similar to efforts undertaken at the heart of the Great Recession to combat this year’s growth slowdown. The Australian Dollar bore the brunt of the selloff after April’s Retail Sales report fell short of expectations, showing receipts slumped 0.2 percent to yield the weakest reading in 10 months.

The economic calendar is relatively tame in European hours, with the focus on April’s Eurozone Money Supply report. Expectations call for the annualized growth rate to tick higher to 3.4 percent, marking the highest reading since June 2009. All things being equal, such an outcome would likely prove supportive for the Euro in that it would discourage ECB rate cut bets. It would likewise show the central bank’s LTRO efforts have helped improve lending access in the region, dampening fears of a brewing credit crunch amid the sovereign debt crisis. Spreads between benchmark German 10-year bond yields and those of periphery economies are trading wider however, hinting the negative overhang from the Spain downgrade may cap gains. Needless to say, a disappointing print stands to weigh heavily on the single currency.

Separately, Italy will sell up to €6.25 billion in 2017 and 2022 bonds, with traders keeping a close eye on average yield and bid-to-cover readings to gauge fiscal sustainability in the Eurozone’s third-largest economy. The final revision of May’s Eurozone Consumer Confidence is expected to confirm sentiment narrowly improved from the previous month but remained in negative territory. S&P 500 stock index futures are pointing sharply lower, arguing for continued risk aversion that is likely to keep the Dollar and Yen well-supported against the major currencies.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Building Permits (MoM) (APR)

-7.2%

-10.0%

19.6%

23:15

JPY

Markit/JMMA Manufacturing PMI (MAY)

50.7

-

50.7

1:30

AUD

Retail Sales s.a. (MoM) (APR)

-0.2%

0.2%

1.1% (R+)

1:30

AUD

Construction Work Done (QoQ) (1Q)

5.5%

3.0%

-3.4% (R+)

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

CHF

KOF Swiss Leading Indicator (MAY)

0.4

0.43

Medium

8:00

EUR

Italian Producer Price Index (MoM) (APR)

0.3%

0.3%

Low

8:00

EUR

Italian Producer Price Index (YoY) (APR)

2.3%

2.7%

Low

8:00

EUR

Euro-Zone M3 s.a. (YoY) (APR)

3.4%

3.1%

Medium

8:00

EUR

Euro-Zone M3 s.a. (3M) (APR)

3.1%

2.7%

Medium

8:30

GBP

Net Lending Sec. on Dwellings (APR)

1.0B

1.0B

Low

8:30

GBP

Mortgage Approvals (APR)

50.1K

49.9K

Medium

8:30

GBP

Net Consumer Credit (APR)

0.2B

0.4B

Low

8:30

GBP

M4 Money Supply (MoM) (APR)

-

-0.8%

Low

8:30

GBP

M4 Money Supply (YoY) (APR)

-

-5.0%

Low

8:30

GBP

M4 Ex IOFCs 3M Annualised (APR)

-

6.4%

Low

9:00

EUR

Euro-Zone Services Confidence (MAY)

-2.8

-2.4

Low

9:00

EUR

Euro-Zone Business Climate Indicator (MAY)

-0.67

-0.52

Low

9:00

EUR

Euro-Zone Consumer Confidence (MAY F)

-19.3

-19.3

Medium

9:00

EUR

Euro-Zone Economic Confidence (MAY)

91.9

92.8

Low

9:00

EUR

Euro-Zone Industrial Confidence (MAY)

-10.2

-9.0

Low

9:00

EUR

Italy to Sell €6.25B 2017-2022 Bonds

-

-

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2300

1.2565

GBPUSD

1.5437

1.5703

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

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