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Morning Forex Fundamental Print E-mail
Daily Forex Fundamentals | Written by Dukascopy Swiss FX Group | Apr 10 13 08:24 GMT

Morning Forex Fundamental

EUR

'When we did our last rating action we said we do attach quite a high likelihood for Spain's having to ask for an ESM precautionary credit line' - Kathrin Muehlbronner, an analyst at Moody's

Spain is widely expected to miss its public deficit target this year, leaving its sovereign rating at risk of slipping below investment grade, credit agency Moody's said on Tuesday. Even though Spanish government implemented severe austerity measures and managed to cut its public deficit to 7% of gross domestic product last year, missing its target of 6.3%. Moreover, it is also unlikely to meet this year's ambitious target of 4.5% and the objective for the next year will only be met in case the government will cancel planned tax cuts.

'Whilst acknowledging the progress in fiscal consolidation that Spain has achieved at all government levels, the outlook on Spain's government bond rating remains negative given the continued challenges it faces in meeting the deficit targets,' Moody's wrote in a note.

'When we did our last rating action we said we do attach quite a high likelihood for Spain's having to ask for an ESM precautionary credit line - that is embedded in the current rating,' Kathrin Muehlbronner, an analyst at Moody's, said in an interview in Madrid today. '

USD

'With the dismal news that our economy actually contracted in the fourth quarter of 2012' - NFIB chief economist Bill Dunkelberg

Small-business owners' confidence fell unexpectedly, the report by the National Federation of Independent Business showed Tuesday. Due to the higher taxes kicking and budget cuts, a gauge of confidence among small businesses dropped 1.3 points to 89.5 in March, down from 90.8 in the prior month. Analysts, however, expected a reading of 92.3, even as confidence among small business owners remains close to record lows. In the meantime, the U.S. economy is not showing signs of stable improvement as it was planned by the Fed, the economy generated just 88,000 jobs in March, the fewest in nine month.

'With the dismal news that our economy actually contracted in the fourth quarter of 2012, it isn't any wonder that more small firms expect their real sales volumes to fall, few have plans to invest in new inventory, and hardly any owners are expanding or hiring.'

'The Optimism Index barely budged in January. The only good news is that it ‘budged' up, not down. If small businesses were publicly traded companies, the stock market would be in shambles. While corporate profits are at record levels as a share of GDP, small businesses are still struggling to turn a profit,' said NFIB chief economist Bill Dunkelberg.

GBP

'This makes a triple-dip recession in the first quarter marginally less likely, and slightly reduces the chances of further Bank of England stimulus in the near-term' - Rob Wood, an economist at Berenberg Bank

Britain's manufacturing output rose twice as much as economists expected in February, as it rebounded from a slump. Nation's manufacturing production increased 0.8% from January, when it fell 1.9%, above analysts' forecasts, which called for a modest 0.4% gain, the Office for National Statistics said Tuesday. Latest data may ease concerns that the economy is heading to a triple-dip recession, as manufacturers are facing a continued slump in the Eurozone, the U.K.'s biggest trading partner, as well as lacklustre demand at home.

'This makes a triple-dip recession in the first quarter marginally less likely, and slightly reduces the chances of further Bank of England stimulus in the near-term,' said Rob Wood, an economist at Berenberg Bank in London. 'This does not affect the underlying picture for the U.K., which is one of stagnation.'

'While February's industrial production and trade data increase the chances that the economy has just about avoided a so-called triple-dip recession, they hardly paint a picture of strength,' said Samuel Tombs, an economist at Capital Economics Ltd. in London. 'The big picture is that the economic recovery is still struggling to gain any traction.'

JPY

'Keeping expectations high will be extremely difficult for Kuroda' - Nobuyasu Atago, principal economist at the Japan Center for Economic Research

Japan's machine tool orders dropped significantly last month. However, the situation is expected to improve, as latest BoJ's action should boost investor and business confidence and have a positive impact on willingness to increase spending. A gauge, which measures a change in the total value of new orders placed with machine tool manufacturers, fell 21.6% in March from the same month a year earlier, after a 21.5% slump in the prior month.

Also Tuesday Credit ratings agency Moody's Investors Service said that bold actions by the BoJ will only buy time, but will not improve the overall economic situation or eliminate the country's structural economic problems. Moody's also said that the measures the central bank, led by Haruhiko Kuroda, announced last week will help boost the credit rating of nation's bonds.

'Keeping expectations high will be extremely difficult for Kuroda,' said Nobuyasu Atago, principal economist at the Japan Center for Economic Research in Tokyo and a former BOJ official. 'The new central bank leadership will probably use the Tankan result as a reason to add monetary stimulus, as they'll argue that the BOJ shouldn't be throwing cold water on business confidence.'

CHF

'The story in my view is that prices for imported goods are still falling, despite the Swiss National Bank's defense of the 1.20 floor' - David Marmet, economist at Zuercher Kantonalbank

Consumer prices in Switzerland were weaker than previously was expected in March, underlining the Swiss National Bank's view that it needs to maintain the cap it has imposed on the strong Franc. Inflation dropped 0.6% from a year ago and rose 0.2% from the previous month, the Federal Statistics Office said. Analysts, however, expected prices to fall 0.5% year-on-year and rise 0.3% on a monthly basis. In order to prevent deflation and a recession, the SNB capped the Franc at 1.20 per euro in 2011 as investors looking for a safe haven, pushing the currency to record highs, pressuring import prices.

'The story in my view is that prices for imported goods are still falling, despite the Swiss National Bank's defense of the 1.20 floor,' said David Marmet, economist at Zuercher Kantonalbank. 'This helps the SNB maintain its monetary policy, and I see no signs of it changing. We believe the SNB will maintain the cap well into 2014.'

In a separate report, the State Secretariat for Economic Affairs said that Swiss unemployment rate remained unchanged at a seasonally adjusted 3.1% last month, from 3.1% in the preceding month, in line with analysts' forecasts.

 

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