Morning Briefing

Morning Briefing for Friday, 27 Apr 2012 (Updated 09:30:55 CET)Spain downgraded two notches by S&P

What’s new:

Asia: BoJ extends asset purchase programme, sending the JPY lower initially, but risk aversion from Spain took the currency higher.
Europe: Spain’s debt downgraded to BBB+ by S&P. EUR on the offer.
US: Sluggish jobless claims increased pressure for QE, but was offset by decent housing figures.

Rates in Asia and Indices:

                               Low            High                  Change
EUR/USD            1.316          1.3223               -0.34 %
USD/CHF            0.9086         0.913               -0.33 %
GBP/USD            1.6154         1.6191             -0.12 %
USD/JPY             80.49            81.45                   0.17 %
EUR/CHF           1.20132        1.20183           0.01 %
EUR/JPY            106.28           107.48                0.53 %
Dow Jones         13075.96     13227.82     0.87 %
Nasdaq               2705.91        2731.73          0.57 %
S&P 500             1387.28        1402.09          0.66 %
Nikkei 225          9463.6           9691.7             -0.51 %
Shanghai            2394.9          2408.42           -0.01 %
Gold spot            1652.5         1658.18           -0.27 %
Oil Future            103.93         104.24             -0.53 %

Comments:

Markets remained without any clear sign of direction in the Asia and London session yesterday as there was a lack of interesting figures. A string of Euro zone weak sentiment indices put early pressure on the EUR after printing new 3-week highs at 1.3263. Trend line resistance from October 2011 also added offers to the scene and at mid-day tested the 1.32-level. US claims came out worse than expected, but the negative sentiment from those was offset by a positive surprise in the US pending home sales for March, coming out at 4.1% vs. 1.0% expected. Stocks took the good news as more valuable than the weekly claims and sent stocks higher and the US dollar lower, EUR/USD came briefly back above 1.3250.

Yesterday evening, the S&P decided to downgrade Spain’s long term rating two notches to BBB+ from A with a negative outlook. The short term rating was also reduced to A-2 fra A-1. The two notch downgrade in long term debt comes as a result of the weak development in the Spanish public finances, terrible unemployment rates and a negative growth which calls for further support from the already hard tried Euro zone. As a credit rating is expressing the quality of the Spanish credit, this could have severe consequences for their yields and markets will observe if rates will push and consolidate over the 6%-mark. It is rumoured that a yield above 7.5% will trigger an LTRO3. This morning, the Spanish unemployment rate for March came out at 24.44% vs. 23.8% expected and 22.85% prior.

In Asia, the Bank of Japan expanded their asset purchase program by 10 trillion yen which was in the expected range of the analysts. As a result of a slowing economy, policy makers are increasing liquidity to ease credit facilitation. JPY-crosses were very choppy post the announcement, but the Spanish downgrade has had the opposite effect as we are seeing the JPY appreciating across the board.

Today, the main focus will be the US GDP for Q1 which is expected to come out at 2.5% vs. 3.0% prior. Another interesting figure is the quarterly PCE which is expected to come out at 2.1% vs. 1.3% prior. This means a scenario with lower growth and higher inflation which definitely is not what the Fed is looking for. If this scenario comes out worse than expected, we could see risk aversion becoming more present and EUR/USD continuing on the offer. Key support in the pair at 1.3140/50-area where a break could open up for a re-test of the 1.31-figure. Short term resistance at 1.3210 before recent highs at 1.3263

Have a nice weekend!