European Market Update: China PBoC clarifies its concerns over the global recovery ahead of US payrolls
Friday, April 02, 2010
European Market Update: China PBoC clarifies its concerns over the global recovery ahead of US payrolls
*** ECONOMIC DATA *** - (HU) Hungary Jan Final trade Balance: â‚¬290.3M v â‚¬290.4M prior - (IT) Italy Q4 Deficit to GDP ratio YTD: 5.2 v 5.5% prior - (MA) Malaysia Feb Trade Balance (MYR): 11.7B v 12.5Be
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM *** - Equities: European markets closed
- Speakers: A Chinese PBOC Adviser commented that it might adjust Yuan currency rate if Pres Hu's visit to US was a success. The advisor added that a one-off revaluation would not benefit either China or US. Expectations by the public was critical to controlling inflation but noted that China could sustain strong economic growth in coming years ***China PBoC issued its International Financial Market Report and commented that the 2010 global economy would continue the recovery trend and momentum seen in 2009. It did clarify the several factors it viewed as the uncertainties. It noted that sovereign debt concerns and central bank exit strategies from special measured complicated the global recovery outlook. It also noted that Ample global liquidity could raise inflation in some regions and this would also complicate the global picture. It saw asset bubbles emerging globally and the potential for the bubbles to burst. The economic recovery needed to be supported by real growth or bubbles would burst. Exit strategies from special measures would mean short-term interest rate rebound and that major Countries' longer term Govt bond yields were seen higher in 2010. The PBoC warned on difficulties of exit strategy coordination due to unbalanced recovery and stressed that central bank must coordinate exits to avoid volatility. It also saw risks of downgrading of major economies including the US and UK; stimulus plans of major economies might harm sovereign ratings and long term growth. The central bank pledged to 'steadily' develop Yuan full convertibility. It noted that 2010 oil price increase would not match 2009 levels and that the price action was range bound at end 2009 levels. 2010 Gold prices were also seen range bound but could stay at high curent levels. However the PBoC saw limited upside potential in the precious metal. The USD could stage technical rebound but its upside was seen capped by low US interest rates and high US deficits. Rising risk appetite from the recovery would also erode the dollar's appeal. The PBoC reiterated that it would relax controls of cross-border capital account transactions *** Fitch commented on Poland and saw 2015 as most likely entry date for Poland into Euro. Diversified Polish economy and Zloty exchange rate regime supported macro stability. Fitch forecasted the country's 2010 GDP growth at 2.3% on strong external demand and the deficit to GDP ratio at 6.4%. However, it cautioned that political risk was possible to the country's 'fiscal prudence' ahead of Parliament elections (due in 2011) *** Turkey Econ Min Babacan stated that recent data pointed to growing economic recovery and Turkey has emerged from recession . Q1 growth in double-digits would not be a surprise due to base effects *** India Fin Min Mukherjee commented that India's FY11 GDP growth could hit 8.75% (a bit above his view views on that topic) *** Czech Central Bank minutes from Mar 25th policy meeting assumed that Czech rate increases would be delayed and slower compared to prior outlook. Rates were left unchanged but members Singer and Tomsik voted for a 25bps rate cut. Pace of interest rate cuts overseas the key downside inflation risk. Some members expressed concern about Euro region rate impact on CZK currency. Most members agreed that interest Rate were "close to bottoming out. Oil and commodity prices seen as upside threats to inflation. Wage trends were also a major uncertainty ***
- Currencies/Fixed Income: The USD was a touch firmer ahead of the US payroll data. EUR/USD trading at the mid 1.35 handle and USD/JPY testing 94.00 for its highest level in seven months. China Central bank noted that the dollar could stage a technical rebound in the short-run but deficit concerns would cap any long-term trend. China PBoC advisor commented that the Yuan currency rate could be adjusted if Pres Hu's visit to US was a success.
***Notes/Observations: - US payroll data to be released in thin conditions with equity markets closed - China seems to be warning up to CNY appreciation concept
***Looking Ahead*** - 8:30 (US) Mar Change in Nonfarm payrolls: 184Ke v -36K prior; Change in Manufacturing payrolls: 15Ke v 1K prior - 8:30 (US) Mar Unemployment Rate: 9.7%e v 9.7% prior - 8:30 (US) Mar Avg Hourly Earnings M/M: 0.2%e v 0.1% prior; Avg Weekly Hours: 33.9e v 33.8 prior - 10:00 (US) Treasury's Krueger briefing on labor markets
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