Daily Market Digest: German factory orders, Greece bailout

May 09, 12:33 pm
Greece_Bailout

German factory orders surged the month in March as demand for German goods increased from non-Eurozone countries. Japanese officials continue their verbal salvo against the yen and Greece approves more austerity measures.

Today’s Economic events

  • BoJ releases monetary policy meeting minutes
  • Japan average cash earnings y/y 1.40% vs. 0.60%
  • Australia ANZ job advertisements m/m -0.80% vs. 0.10% previously
  • Japan consumer confidence 40.8 vs. 40.8
  • German factory orders m/m 1.90% vs. 0.70%
  • Switzerland CPI m/m 0.30% vs. 0.20%
  • UK Halifax HPI m/m -0.80% vs. 0.10%
  • Eurozone Sentix Investor Confidence 6.2 vs. 6.1
  • Canada housing starts 192k vs. 195k

Coming up

  • US Labor market conditions index

Japan’s Finance Minister Aso – “Ready to intervene.”

After Japanese markets had been closed for the most of the last week, the verbal rhetoric started this week with finance minister Taro Aso saying that Tokyo was ready to intervene in the currency markets if the yen continues to be volatile. The finance minister said that such sharp volatility in the exchange rates was undesirable as it impacts trade and economy. The verbal salvo continues to pour out of Japan and comes at a time when the US semi-annual currency report few weeks ago named Japan as one of the countries actively engaging in weakening its currencies. According to US trade laws, sanctions could be imposed on such countries. However, the Japanese finance minister brushed aside concerns noting that the two countries differed on what would be deemed as an excessive appreciation in the currency which requires intervention.

Speaking in the parliament, Aso said “For Japan, excessive volatility in yen moves that affect Japan’s trade, economic and fiscal policies – be it yen rises or yen falls – is undesirable. If such moves occur, Japan is ready to intervene in the market.”

The yen rose sharply in the last week of April after the Bank of Japan left monetary policy unchanged much against market expectations, which sent the yen sharply lower to post a new 18-month low at 105.580 on May 3rd.

German factory orders rise on foreign demand

Posting a surprise, industrial orders in Germany rose more than expected in March due to foreign demand from outside the eurozone countries. Data from Germany’s Destatis showed on Monday. German orders for goods were up 1.90% in March, posting the biggest monthly increase since June 2015 beating forecasts of a 0.70% increase. Domestic orders fell 1.20%, but foreign demand rose 4.30% driving the monthly increase. Orders from Eurozone increased 1.10%, but bookings from outside the eurozone surged 6.20%. Dirk Schlotboeller, an economist at DIHK Chambers of Commerce, said: “Domestic orders are again disappointing, the trend is still pointing downward.”

February’s orders were also revised higher, to show a decline of 0.80% from the initial reports of a 1.20% decline. In the first quarter, German factory orders rose by 0.50%. Germany will release the first quarter GDP estimates later during the week.

Greece passes austerity reforms to unlock the third bailout

On the weekend, Greece parliament approved the much awaited reforms to appease lenders in a bid to secure more financial aid. The controversial package includes pension cuts and tax reforms to meet the fiscal targets laid down by the lenders for the debt-ridden economy of Greece to unlock 86 billion euros as part of its third bailout package. The newly passed reforms are expected to see Greece meet a 3.0% budget surplus target by 2018 when the interest payments begin and also unlock the country’s debt to the bond markets. The lenders to Greece, known as “troika” include the IMF, European Central Bank and the European Commission. However, disagreements continue within both the Troika and Greece lawmakers. IMF insists on a debt relief while Germany is opposed to the idea, while in Greece, opposition parties criticized the new bill warning that the latest austerity measures could lead Greece deeper into recession.

Greece was on the verge of an exit from the Euro-bloc in June last year after the newly elected left-wing party led by Alexis Tsipras attempted to renegotiate the financial aid with its lenders.

One more rate cut from RBA – JPMorgan

The Australian dollar continues to remain under bearish sentiment following last week’s RBA cuts and lower inflation forecasts from the RBA, which saw the central bank cut rates by nearly 100bps for 2016 and expects inflation to average near 1 – 2 percent. Sally Auld, Chief Economist at JPMorgan Australia expects the RBA to deliver another rate cut as early as August noting that “expect another rate cut in August, and there is downside risk to our terminal rate forecast of 1.5%

The implied bias of the RBA was drawn from the quarterly Statement on Monetary policy released last week which saw the RBA’s interest rate at 1.75%.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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