Asian and European indices followed in the footsteps of its North American counterparts as positive sentiment lifted stocks. The improvement in Asia can be attributed to data from China which showed Chinese banks extended its highest volume of loans since 2010 at 1.32 trillion yuan, above the estimated 1.1 billion yuan. This set of data suggests that China’s economy may not be cooling as much as some have speculated and that the People’s Bank of China’s stance remains neutral. In other encouraging news, trust loans which has been under the microscope due to default risks are at half the level of a year earlier.
There is growing apprehension that Abenomic’s momentum has hindered with the latest reading of Japanese GDP expanding at a pace of 0.3% in the last quarter of 2013, below expectations of a 0.7% gain. On an annualized basis, the economy grew a mere 1%, trailed forecasts of 2.8%. Possible factors that could have interfered with consumer spending include rising fuel and food costs in light of weak growth in wages. Many have estimated the economy would pick up steam as consumers stock up on suppliers prior to the sales tax hike due in April from 5% to 8 percent. This, clearly, has not been the case and may force the hand of the Bank of Japan to step in with further monetary easing.
In Europe, the euro remained resilient around the 1.3700 handle bolstered by news from Germany and Italy. The Bundesbank, in its monthly report, has raised its forecast for German growth from 1.7% to 1.8% in 2014 due to an improvement in businesses and households. It further reiterated that in order for the economy to strengthen further, increased foreign demand and strong domestic growth will be needed.
Italy’s 10 year bond yields fell to 3.61%, it’s lowest since January 2006 as President Giorgio Napolitano appointed Democratic Party Leader Resnzi to form a coalition government, following the resignation of Enrico Letta last week. Markets welcomed the move as Resnzi is perceived to be more proactive than Letta and will be able to push through reforms to help spur the Italian economy after years of stagnation. This is further evidenced from Moody’s move late on Friday to change Italy’s outlook from negative to stable.
In welcoming news from other southern peripheral nations, Greece’s Prime Minister, Antonio Samaras said that Greece’s primary budget surplus will exceed 1.5 billion Euros, compared with an upwardly revised target of EUR 812 million. This comes a year ahead of schedule and after years of tax rises and spending cuts demanded by international creditors in exchange for two bailouts. Greece was not expected to achieve a surplus until the end of 2014.
On a technical basis, near term resistance for EUR/USD is seen at 1.3728, 1.3762 and then 1.3797. On the downside, a close of 1.3686 will expose 1.3652, followed by 1.3618.
The pound, after reaching an overnight high of 1.6823 has retraced to 1.6720. Much of the recent strength in cable is due to the increase in growth forecast and better than expected quarterly inflation report last week. In fundamental data from the UK, February’s House Price Index rose 3.3%, from 1.0% the prior month. In order for the pound to strengthen further, GBP/USD would need to successfully test 1.6801, 1.6843 and 1.6885. On the flip side, a breakdown of 1.6695 could bring forth 1.6653 and 1.6612.
As we head into the North American session, thin trade will dominate USD/CAD due to President’s Day in the US and empty docket in Canada. This week will be key for USD/CAD as markets will focus on Bank of Canada Review, retail sales and inflation data on Friday. North of the border, traders will peruse minutes from the Federal Reserve for hints on the pace of further tapering. At time of writing, USD/CAD is down 0.17% at 1.0965 where immediate support is at 1.0942, while a break above 1.0983 could see a retest of the 1.1000 handle.